Airlines to See 78 Percent Profit Drop This Year: IATA
The IATA had initially released an $8.6 billion profit forecast in March, but natural disasters and political unrest have significantly affected a part of the airline industry. A $4 billion profit this year would mean a 78 percent drop from the $18 billion net profit recorded in 2010.
“Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year. That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance,” said Giovanni Bisignani, IATA’s CEO and Director General. “The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7 percent margin, there is little buffer left against further shocks.”
The Association said the cost of fuel is the main cause of reduced profitability, as the average oil price for 2011 is now expected to be around $110 per barrel, a 15 percent increase over the previous forecast of $96 per barrel. For each dollar increase in the average annual oil price, airlines face an additional $1.6 billion in costs.
Fuel is now estimated to comprise 30 percent of airline costs, which is more than double the 13 percent of 2001. “We have built enormous efficiencies over the last decade. In 2001, we needed oil below $25 per barrel to be profitable. Today, we are looking at a small profit with oil at $110 per barrel,” said Bisignani.