Soaring oil prices have forced Iata to downgrade airline industry profit expectations for 2012 down by $500 million to $3 billion.

The $500 million downgrade from the December forecast is primarily driven by a rise in the expected average price of oil to $115 per barrel, up from the previously forecast $99.

Director general and chief executive Tony Tyler said: “2012 continues to be a challenging year for airlines.
“The risk of a worsening eurozone crisis has been replaced by an equally toxic risk – rising oil prices. Already the damage is being felt with a downgrade in industry profits to $3 billion.

“While we have seen some improvements in economic prospects any further significant rise in the fuel price will almost certainly turn weak profits into losses.”

The global airline body also called for governments to take a more strategic approach to the aviation industry.

“Airlines are buffeted by many forces beyond their control,” said Tyler. “Today’s forecast demonstrates just how quickly the operating environment can change.

“Four months ago the biggest worry was a European financial disaster; today it is rapidly rising oil prices. Nimbleness and operating efficiency are critical to maintaining competitiveness and managing through such dramatic shifts.”

Tyler added: “A sustainable airline industry could deliver much more to the global economy. But the unintended consequences of many government policies have contributed to keeping the industry on a knife-edge between profit and loss.”

He highlighted “short-sighted excessive tax collection” in many markets as undercutting the aviation industry’s ability to provide access to the connectivity that drives global business.

“Regulation implemented without a clear cost-benefit analysis often scores political points at the expense of industry efficiency let alone solving the problems it was intended to address,” Tyler said.

“Today’s industry situation reinforces the need for governments to take a more strategic approach to aviation with competitiveness-enabling policies that will deliver broad economic benefits.

“This has been tried, tested and proven by many governments in Asia and the Middle East. Europe, India, the US and others should take note.”