Iata cuts airline profit forecast as fuel prices rise

Iata's boss Giovanni Bisignani assesses the problems faced by the airline industry

The International Air Transport Association (Iata) has cut its profit forecast for the airline sector further because of rising fuel costs.

Iata said it expected airline industry profits to be just $4bn (£2.4bn) in 2011 as rising fuel prices continue to dent profits of carriers.

In 2010, the industry made a profit of $18bn. In March, Iata had predicted profits of $8.6bn this year.

Iata said high fuel costs were having a "big impact on our profitability".

"Last year the bill was $136bn, this year with the price of oil average $110 [the bill] will be $176bn, over $30bn [more] and that is one of the major concerns," Giovanni Bisignani, the head of Iata, told the BBC.

'Big problem'

Last year, the airline industry recovered faster than expected from the global recession.

"After a good year, this year started in a terrible way," Mr Bisignani said.

Mr Bisignani blamed unrest in the Middle East, an increase in the price of fuel and the nuclear disaster in Japan for the industry's bleak outlook.

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I believe we have to take legal action [against the Emissions Trading Scheme]”

End Quote Wei Zhenzhong, China Air Transport Association

Iata used an average oil price of $96 for a barrel for Brent crude when calculating its profit forecast in March.

Since then, oil prices have passed $110 a barrel.

According to Mr Bisignani, a $1-a-barrel increase means a jump of $1.6bn in costs.

"That is a big, big problem for us," he said.

Mr Bisignani warned that any further spike in fuel prices would be tough for the sector.

"That $4bn is with the price of fuel at $110, we see already these days that the price is higher than this." he added.

Fuel costs will represent 30% of airline expenses in 2011, according to Iata.

Asian growth

Analysis

It may be taking place at one of the most glamorous venues in Singapore but it felt as if the delegates had come ready for a fight rather than a party.

On one side the industry is banding together to speak out against the European Emissions Trading Scheme. Airlines say it is less an environmental measure and more a way for European governments to raise revenues, with the impact being felt by consumers.

But an internal issue also seems to be coming to a head about the perceived imbalance between the 'legacy' carriers and the growing might of Middle Eastern airlines. Some within the industry say it is unfair that carriers such as Etihad, Qatar and Emirates are government-backed and protected.

The only sense of optimism seems to be coming from the booming markets of China and India, as the focus of the airline industry shifts eastwards.

Airlines in Asia-Pacific are expected to remain the most profitable in the sector.

According to Iata, carriers in the region are forecast to earn $2.1bn in 2011, the highest out of all the regions.

However, the figure is still sharply lower than the $10bn profit that the region's carriers made last year.

Robust demand for air travel in both China and India is likely to support Asian profits this year.

According to Iata, demand for air travel in the region is expected to increase by 6.4% in 2011.

But it warned that lower demand for air travel from Japan may have a big effect on growth.

The 11 March earthquake and tsunami in Japan that triggered a crisis at the Fukushima nuclear power plant hit the travel and tourism sectors hard.

The disaster saw a drop of 31% in demand for domestic travel in Japan in April, compared with the previous year, according to Iata.

Internationally, Japan saw air traffic fall by 20% in April, which has knocked 1% off global international travel.

"Japan represents 10% of the total industry revenues - that will impact strongly," said Mr Bisignani.

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