IATA cuts airline profit forecast
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The International Air Transport Association (IATA) has downgraded its airline industry outlook for 2011 to US$8.6 billion (INR38,674 crore) from the US$9.1 billion it estimated in December 2010. This marks a 46% fall in net profits compared to the US$16 billion earned by the industry in 2010. On expected industry revenues of US$594 billion, the US$8.6 billion 2011 profit equates to a net profit margin of 1.4%.
Giovanni Bisignani, IATA’s Director General & CEO, said that spiralling oil prices caused by the continuing unrest in the Middle East was the main factor affecting airlines’ profits this year.
“Political unrest in the Middle East has sent oil over US$100 per barrel… significantly higher than the US$84 per barrel that was the assumption in December. At the same time the global economy is now forecast to grow by 3.1% this year – a full 0.5 percentage point better than predicted just three months ago. But stronger revenues will provide only a partial offset to higher costs. Profits will be cut in half compared to last year and margins are a pathetic 1.4%,” said Bisignani.
Asia Pacific carriers are expected to deliver the largest collective profit of US$3.7 billion and the highest operating margins of 4.6%. This is down substantially however, from the US$7.6 billion that the region’s carriers made in 2010 and lower than the US$4.6 billion profit forecast in December. IATA stated that while the strong economic growth in the region is still driving profitability, inflation fighting measures in China are slowing trade and air cargo demand.
“This year the industry is performing a balancing act on a very thin tight-rope of a 1.4% margin…. There is very little buffer for the industry to keep its balance as it absorbs shocks. Today oil is the biggest risk. If its rise stalls the global economic expansion, the outlook will deteriorate very quickly,” said Bisignani.
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