The International Air Transport Association yesterday halved its profit forecast for the airline industry to $4 billion in 2011, due to the March 11 tsunami in Japan, unrest in the Middle East and North Africa and high oil prices.
“That we are making any money at all in a year with this combin-ation of unprecedented shocks is a result of a very fragile balance,” IATA director-general Giovanni Bisignani said.
“Natural disasters in Japan, unrest in the Middle East and Africa, and the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year,” he said at IATA’s annual general meeting, which is being held in Singapore this week.
The revised profit outlook is down sharply from a previous estimate of $8.6 billion made in early March just before the tsunami-quake disasters struck northeastern Japan.
If the forecast is accurate, it would mark a 78 per cent decline from the post-recession profit of $18 billion that the world’s airlines made last year.
IATA’s new profit outlook shows a measly 0.7 per cent margin on expected revenues of $598 billion for the capital-intensive industry, and leaves airlines with little capacity to absorb new external shocks.
“The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel,” said Mr Bisignani, who is also IATA’s chief executive officer.
“But with a dismal 0.7 per cent margin, there is little buffer left against further shocks,” he added.
The high oil price is the biggest culprit dragging down the industry ’s profitability, said IATA, which has raised its average Brent crude forecast by 15 per cent to $110 a barrel for 2011.
Previously, the airline body estimated Brent crude would average $96 a barrel this year.
In Asian trade on Monday, Brent North Sea crude for July delivery was trading at slightly above $115.43 a barrel.
IATA said airlines can expect to pay $1.6 billion more for every one-dollar increase in the average annual oil price.
“With estimates that 50 per cent of the industry’s fuel requirement is hedged at 2010 price levels, the industry’s 2011 fuel bill will rise by $10 billion to $176 billion,” IATA said in a statement.
“Fuel is now estimated to comprise 30 per cent of airline costs, more than double the 13 per cent of 2001,” it said.
Carriers from the Asia-Pacific are expected to outperform the rest of the world with a likely profit of $2.1 billion for the year, but this is down sharply from the $10 billion earned in 2010, IATA said. “Airlines in this region are more exposed than others to cargo markets and fuel price fluctuations,” it said.
“In addition, the Japanese earthquake and tsunami are expected to dent the region’s prospects for the remainder of the year.”
IATA expects robust growth in India and China to provide underlying support to the region’s carriers.
The political unrest in the Middle East will squeeze the region’s carriers, which are seen earning just $100 million in profits, down sharply from $900 million last year, IATA said.
North American carriers are expected to earn $1.2 billion this year, down from $4.1 billion in 2010 as the cost of oil is exacerbated by the region’s fleet of mostly older, less-fuel-efficient aircraft, IATA said.
In Europe, carriers will likely make $500 million compared with $1.9 billion last year as the ongoing sovereign debt crisis hits growth in the smaller European economies.
Africa is the only region expected to be in the red, with a likely loss of $100 million as the recent political unrest in Egypt and Tunisia continues to affect the tourism sectors.