The International Air Transport Association (IATA) downgraded its airline industry outlook for 2011 to $8.6 billion from the $9.1 billion it estimated in December 2010. This is a 46% fall in net profits compared to the $16 billion (revised from $15.1 billion) earned by the industry in 2010. On expected industry revenues of $594 billion, the $8.6 billion 2011 profit equates to a net profit margin of 1.4%.
“Political unrest in the Middle East has sent oil over $100 per barrel. That is significantly higher than the $84 per barrel that was the assumption in December. At the same time the global economy is now forecast to grow by 3.1% 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 cut in half compared to last year and margins are a pathetic 1.4%,” said Giovanni Bisignani, IATA’s Director General and CEO.
“This year the industry is performing a balancing act on a very thin tight-rope of a 1.4% margin. It is a structural problem that the industry has faced with an average margin of just 0.1% over the last four decades. There is very little buffer for the industry to keep its balance as it absorbs shocks. Today oil is the biggest risk. If its rise stalls the global economic expansion, the outlook will deteriorate very quickly,” said Bisignani
IATA also highlighted the risk of increasing taxation, particularly in price sensitive leisure markets.
“This is a price sensitive business. Aviation has the power to stimulate economies. But that ability is being compromised by adding taxes at a time when we are struggling to cope with high fuel prices just to maintain anemic margins,” said Bisignani.
Middle East carriers are expected to return a profit of $700 million.
“This is considerably better than the $400 million previously forecast, but down from the $1.1 billion profit that the region posted in 2010. Political instability in the region is expected to take its toll in Egypt, Tunisia and Libya which combined account for about 20% of the region’s international passenger traffic. This is balanced by the Gulf area which benefits from economic activity related to high oil prices and whose hubs continue to win long-haul market share. Load factors have also improved significantly for these airlines, as new capacity is being added at a slower pace than demand increases,” IATA added.