The International Air Transport Association says airline profits this year will be cut by nearly 50 percent because of higher oil prices, largely due to turmoil in the Middle East. IATA is downgrading its airline industry profit outlook for 2011 to $8.6 billion - from about $16 billion profit reported by the airlines in 2010.
Political unrest in the Middle East has pushed oil prices to more than $100 a barrel. This is substantially higher than the $84 per barrel the International Air Transport Association predicted in December.
The IATA report says rising oil prices are always a challenge for airlines, and the events in the Middle East pose a significant risk.
IATA Director General Giovanni Bisignani says the impact of higher fuel prices is lessened by the global economic recovery, but the airline industry still faces significant hurdles.
We have an industry that is always stumbling from a crisis to another crisis, from a shock to another shock, with a margin, as I mentioned before, more similar to a charity association than a real business. This is an industry that is not sustainable in the long term.”
The report finds Asia-Pacific carriers will earn the biggest profits this year. But even in Asia, the expected collective profit of $3.7 billion is substantially down from the $7.6 billion the region’s carriers made last year.
The report says profit for North American carriers in 2011 is expected to fall to $3.2 billion, which is about $1.5 billion less than in 2010.
Bisignani says Europe’s carriers remain the least profitable among the major regions. Europe's airlines are expected to make only $500 million in profit this year. As for the situation of Middle Eastern carriers, he says their 2010 profit of $1.1 billion will shrink to $700 million.
“One of the reasons is quite clear was this turmoil in the political situation. We have the cases of Egypt, Libya and Tunisia," he said. "There are about 20 percent of the region traffic and this has been really and very clearly impacted by the overall political situation. In the Gulf region, high oil prices bring economic activity and that is the reason why it perhaps continues to gain market share on long-haul routes.”
The IATA report forecasts a sharp decline of profits among Latin American carriers from $1 billion last year to $300 million in 2011.
It says African carriers are expected to break even, down from the $100 million profit made by the region last year. The report says strong economic growth and rapidly growing trade links with Asia are keeping African carriers out of the red. But it notes intensifying competition from Middle Eastern carriers and others for lucrative business traffic could spell trouble for African airlines.