The airline industry’s profit forecast for 2011 has been slashed by 54% to $4 billion as high oil prices, natural disasters, and political unrest take their toll.
Iata downgraded profit forecast from the $8.6 billion predicted in March and the $18 billion net profit recorded in 2010. A $4 billion profit equates to a 0.7% margin on expected revenues of $598 billion, according to the organisation.
Director general and chief executive Giovanni Bisignani said: “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.
“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% margin, there is little buffer left against further shocks.”
The cost of fuel is the main cause of reduced profitability with the average price of Brent oil for 2011 now expected to be $110 a barrel, up 15% over previous forecasts of $96 per barrel.
For each dollar increase in the average annual oil price, airlines face an additional $1.6 billion in costs, Iata says.
With estimates that 50% of the industry’s fuel requirement is hedged at last year’s price levels, the industry’s 2011 fuel bill will rise by $10 billion to $176 billion.
Fuel is now estimated to comprise 30% of airline costs – more than double the 13% 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.
The number of price-sensitive leisure travellers has fallen 3%–4% over the past five months as travel costs were forced higher by fuel prices and by new passenger taxes in Europe.
Less price-sensitive premium travel demand has been more robust in the face of rising prices and continues to be driven by growing world trade and business investment.
Premium passenger growth has dipped from 9% in 2010, but is expected to be close to the historical trend this year at a 5%–6% rate, Iata reported.
Overall passenger demand is now expected to grow 4.4% over the year, 1.2 percentage points below the 5.6% previously forecast in March.