Europe's Carriers may lose US$1.1b

PUBLISHED : Tuesday, 12 June, 2012, 12:00am
UPDATED : Tuesday, 12 June, 2012, 12:00am


Losses at European airlines will hit US$1.1 billion this year - almost double the US$600 million estimate made just three months ago, as the euro-zone crisis continues to worsen, the International Air Traffic Association (IATA) has warned.

The forecast will worsen if the situation evolves into a banking crisis and plunges the whole continent into recession, according to Tony Tyler, director general of the airline trade body that represents more than 230 airlines and is holding its annual meeting in Beijing.

But more positive signs have been observed in the United States. The profit forecast for US carriers was revised up to US$1.4 billion, from US$900 million.

Forecast profits for the industry worldwide remained unchanged at US$3 billion.

The chiefs of the mainland airlines said mainland carriers were heading for a bigger challenge this year than in the global financial crisis more than three years ago because Asia had slowed down.

'The operating environment for 2012 is even more difficult than in 2008,' Air China chairman Wang Changshun said at the conference yesterday.

International traffic, which accounts for nearly 30 per cent of the total revenue of the Beijing-based operator, will shrink this year from 2011 as the European sovereign debt crisis and the slowdown in growth in the United States dampen inbound traffic demand.

Softening traffic growth on the mainland and in India has led IATA to revise down the profit forecast for carriers in the Asia-Pacific region.

Airlines in the region are expected to report US$2 billion in net profit, down from US$2.3 billion in the previous forecast three months ago.

Global airlines as a whole would make US$3 billion in net profit on US$631 billion of sales, representing a profit margin of 0.51 per cent, compared with a 3 per cent margin on average over the past 10 years, IATA said.

In light of the recent softening in oil prices, IATA revised down the oil price forecast to US$110 per barrel, from US$115 per barrel. 'The industry's profitability is balancing on a knife edge,' Tyler, the former head of Cathay Pacific, said. 'If the bottom line worsens by even the equivalent of just 1 per cent of revenue, our US$3 billion profit very quickly becomes a US$3 billion loss.'

Liu Shaoyong, chairman of China Eastern Airlines, said the cargo business was seriously hit by the recession. China Cargo Airlines, China Eastern's air cargo arm, would see cargo tonnage drop this year from 2011, he said. The cargo airline runs 19 freighters out of Shanghai, the city's largest all-cargo operator.

Although there has been a modest bottoming out in international cargo traffic, Asian operators are still yet to feel any improvement. 'The bulk of cargo is shipped out of Asia to Europe and the US, which makes them more vulnerable to the current economic crisis in the West,' IATA chief economist Brian Pearce said.

Mainland carriers are pinning their hopes on passenger traffic. Overall, the passenger sector was expected to perform better than cargo, while domestic routes would be better off than their international counterparts, Wang said. And domestic demand would continue to ride on Beijing's stimulus programme, he said.

China Eastern also expected overall passenger numbers to rise this year because of strong demand. But international routes were weaker, particularly those to Europe, Liu said.

Demand, however, is improving for eastern routes such as those to the United States, Japan, Korea and Singapore.

But Li Jiaxing, director general of the Civil Aviation Administration of China, said the pace of new plane deliveries on the mainland would not be harmed by the downturn. Li expected carriers to be operating some 4,700 aircraft on the mainland - including general aircraft - by 2015. Air China is to boost its fleet to 700 by that year, up from the existing 400.


Airlines in the Asia-Pacific region may book net profits of this much, in US dollars, this year•US$2.3 billion forecast three months ago