IATA says higher oil prices mean lower profits for airlines

PUBLISHED : Thursday, 03 March, 2011, 12:00am
UPDATED : Thursday, 03 March, 2011, 12:00am

Asian airlines are set to post lower collective profits of US$3.7 billion this year partly as a result of mainland anti-inflation policies that have slowed trade and cut demand for airfreight, the International Air Transport Association said.

The revised forecast was US$900 million lower than the US$4.6 billion profit estimate IATA released in December and compares poorly with the US$7.6 billion Asian airlines made last year.

In its latest industry financial forecast, published yesterday, IATA said Asian airlines would remain the most profitable in the industry but would also have the highest operating margins at 4.6 per cent because they were more exposed to higher fuel prices.

The airline group said the global airline industry was forecast to make a net profit of US$8.6 billion this year, down from US$9.1 billion it estimated in December. This reflected higher oil prices since political turmoil gripped many countries in the Middle East.

'Political unrest in the Middle East has sent oil to more than US$100 per barrel,' IATA director general Giovanni Bisignani said. 'That is significantly higher than the US$84 per barrel that was the assumption in December.'

IATA forecast that oil prices are likely to be 20 per cent higher this year than in 2010.

Bisignani added: 'At the same time the global economy is forecast to grow by 3.1 per cent 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 half compared with last year.'

The rise in global gross domestic product will increase passenger demand this year to 5.6 per cent from the 5.2 per cent forecast in December, while air cargo will increase to 6.1 per cent from 5.5 per cent, the group forecast.