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Airline industry on brink of losses – IATA

The International Air Transport Association (IATA) has announced a downgrade in its industry outlook for 2012 primarily due to rising oil prices, short-sighted government policies and taxation.

Friday 30 March 2012, 11:54AM

IATA expects airlines to turn a global profit of US$3 billion (B90 billion) in 2012, equivalent to a margin of just 0.5 per cent.

The US$500 million downgrade from the US$3.5 billion December forecast is primarily because of a rise in the expected average price of oil to US$115 a barrel, up from the previously forecast US$99.

This will push fuel to 34 per cent of average operating costs and see the overall industry fuel bill rise to US$213 billion. Political tensions in the Gulf region increase the risk of significantly higher oil prices, which could put the industry into loss.

Several factors prevented a more significant downgrade by IATA: the avoidance of a significant worsening of the Eurozone crisis; improvement in the US economy; cargo market stabilisation and slower than expected capacity expansion.

“2012 continues to be a challenging year for airlines,” said IATA CEO Tony Tyler.

“The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk — rising oil prices.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.”

Airline performance is closely tied to global GDP growth. Historically, when GDP growth drops below 2 per cent, the global airline industry as a whole returns a loss.

“With GDP growth projections now at 2 per cent and an anemic margin of 0.5 per cent, it will not take much of a shock to push the industry into the red for 2012,” said Tyler.

All regions will see reduced profitability in 2012 compared with 2011, and Europe and Africa will see losses.
European carriers face by far the most difficult situation. The outlook remains unchanged from December with the
expectation of a US$600 million net loss and a margin before interest and tax of 0.3 per cent of revenues.

While it appears that a major worsening of the Eurozone crisis has been averted, many European economies are in deep recession which will see continued weakness in both the cargo and passenger business. At the same time air
travel is being hit by taxation and the cost of the EU’s Emissions Trading Scheme.

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Asia Pacific carriers continue to perform well. Better than expected performance saw a revision of 2011 profits to US$4.8 billion from a previous estimate of US$3.3 billion.

Higher fuel costs will more than halve profits this year but the region’s relatively strong economies will continue to generate more rapid growth in travel and cargo than the other large regions.

“Today’s forecast demonstrates just how quickly the operating environment can change,” said Mr Tyler.

“The unintended consequences of many government policies have contributed to keeping the industry on a knife-edge between profit and loss.”

He also slammed political expediency and “short-sighted, excessive tax collection in many markets.”

This, he said, hampers airlines’ ability to give “access to the connectivity that drives global business”.

“Regulation implemented without a clear cost-benefit analysis often scores political points at the expense of industry efficiency let alone solving the problems it was intended to address.

“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,” said Mr Tyler.

–TTR Weekly



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