Soaring Oil Prices Cut Airline Profit Forecast

Soaring Oil Prices Cut Airline Profit Forecast

The International Air Transport Association March 2 cut its estimate of global airline profit in 2011 as surging oil prices driven by turmoil in the Middle East outweigh the impact of rising traffic.

The world's airlines will book net profit of $8.6 billion this year, down from $9.1 billion forecast by the industry group in December.

This is a little more than half the industry's combined profit of $16 billion in 2010, revised upward from $15.1 billion previously estimated, and represents a net profit margin of only 1.4 percent down from 2.9 percent in 2010.

Global Air Cargo news from JOC:
Global Air Cargo Jumped 20.6 Percent in 2010

IATA's latest forecast is based on an average price of $94 per barrel of North Sea Brent crude compared with $84 in its December forecast. Brent was trading at $116 March 2.

IATA forecast 2011 revenue of $594 billion compared with an estimated $552 billion in 2010, driven by quickening global economic growth.

Cargo traffic is expected to grow 6.1 percent in 2011 up from a previously forecast 5.5 percent, while yields are set to improve 1.9 percent.

Stronger revenue will only partially offset the industry's higher fuel bill, which IATA expects to rise by $10 billion this year to a total of $166 billion.

"We are constantly walking on a tightrope with very thin margins, and there is no buffer," said IATA chief executive Giovanni Bisignani. "This industry is very, very fragile," he said.

Asia-Pacific airlines are forecast to earn the biggest profit of $3.7 billion and the highest operating margin of 4.6 percent. This compares with a combined $7.6 billion profit in 2010 and a previously forecast $4.6 billion for 2011.

North American airlines are expected to make profits of $3.2 billion in 2011, unchanged from the previous forecast and down from $4.7 billion in 2010.

European carriers will earn $500 million in 2011 up from $100 million previously forecast but below their $1.4 billion profit in 2010.

-- Contact Bruce Barnard at brucebarnard47@hotmail.com.