Rising oil prices reducing profitability: IATA

The International Air Transport Association (IATA) has announced a downgrade to its industry outlook for 2012 primarily due to rising oil prices. IATA expects airlines to turn a global profit of US$3 billion in 2012 for a 0.5% margin. This US$500 million downgrade from the December forecast is primarily driven by a rise in the expected average price of oil to US$115 per barrel, up from the previously forecast $US99. Several factors prevented a more significant downgrade: (1) the avoidance of a significant worsening of the Eurozone crisis, (2) improvement in the US economy, (3) cargo market stabilization and (4) slower than expected capacity expansion. “2012 continues to be a challenging year for airlines. The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk — rising oil prices. Already the damage is being felt with a downgrade in industry profits to US$3 billion,”IATA director general Tony Tyler. Airline performance is closely tied to global GDP growth. Historically, when GDP growth drops below 2%, the global airline industry returns a collective loss. “With GDP growth projections now at 2 and an anemic margin of 0.5%, it will not take much of a shock to push the industry into the red for 2012,”said Tyler. IATA revised upwards its estimated profits for 2011 to US$7.9 billion from the previously forecast US$6.9 billion. This was primarily owing to the much better than expected performance of Chinese carriers. “Today’s industry situation reinforces the need for governments to take a more strategic approach to aviation with competitiveness-enabling policies that will deliver broad economic benefits. This has been tried, tested and proven by many governments in Asia and the Middle East. Europe, India, the US and others should take note,”added Tyler.