Airline industry cuts profit forecast
GENEVA,Switzerland – The airline industry group IATA cut back its 2012 profit forecast for the airline sector to US$3.0 billion ($260 billion) from US$3.5 billion yesterday, as tensions in the Gulf push fuel prices up.
If fuel prices were to soar to US$150 a barrel from about US$120 at the moment, some airlines could even go bankrupt, warned International Air Transport Association chief Tony Tyler.
The latest figures foresee bigger-than-expected profits for the global airline sector last year, but a drop of about 60 per cent this year.
Although IATA cited the European debt crisis as the main risk in December 2011, this threat has now been “taken off the table,” it said.
Rather, soaring fuel prices amid supply fears spurred by concerns over Middle East supplies are now key threats to the industry.
IATA had based its initial industry earnings estimate on a forecast fuel price of US$99 a barrel in 2012, but prices have now soared to about US$120, with an annual average expected at around US$115.
“This will push fuel to 34 per cent of average operating costs end see the overall industry fuel bill rise to US$213 billion,” said IATA.
But if oil prices jump to US$150, “we cannot rule out the possibility of some bankruptcy, all regions will lose in this case, the most losses will be in Europe, but everywhere, there will be significant effects,” said Tyler.
“Political tensions in the Gulf region increase the risk of significantly higher oil prices, the implications of which could put the industry into losses,” IATA added.
Tensions between the West and Iran over Tehran’s suspected nuclear weapons drive were underpinning oil prices.
Iran insists its nuclear programme is strictly for peaceful purposes, but its threat to close the Strait of Hormuz, a key oil transit, has markets on edge.
IATA said that any closure of the Strait could force oil prices to spike at US$150 a barrel, thereby leading to a full year average price of US$135.
“In such a scenario, global GDP growth would fall to 1.7 per cent, plunging the entire industry towards losses of over US$5 billion,” it said.
Meanwhile, the industry group raised its profits estimate for the sector last year to US$7.9 billion from a previous forecast of US$6.9 billion, thanks to better than expected earnings from Chinese carriers.
Definitive figures for 2011 would be published in June.
For 2012, Asian carriers are expected to continue performing well, with profits of US$2.3 billion seen as strong economic growth offset the impact of higher fuel charges.
US airlines are also expected to deliver profits, although this is estimated now to reach just US$900 million in 2012 rather than the previously forecast US$1.7 billion as oil charges bite into earnings.
European carriers would be the sector’s worst performers, with losses of US$600 million seen for the year.
“While it appears that a major worsening of the eurozone crisis has been averted, many European economies are in deep recession which will see continued weakness in both the cargo and passenger business,” IATA said.