IATA cuts 2011 profit forecast to $8.6 bln due to rising fuel price

GENEVA Wed Mar 2, 2011 5:16pm IST

A logo is seen at a BP fuel station in London July 27, 2010. REUTERS/Toby Melville/Files

A logo is seen at a BP fuel station in London July 27, 2010.

Credit: Reuters/Toby Melville/Files

GENEVA (Reuters) - Global airline net profits will halve this year as rising costs, especially oil prices, offset increasing demand, the industry body IATA said on Wednesday.

The result would be a net profit margin this year of only 1.4 percent -- dismissed by IATA Director-General Giovanni Bisignani as more worthy of a charity than an industry -- down from 2.9 percent in 2010.

Bisignani told a news conference that increased taxes such as levies on ticket prices were another threat to the struggling industry, which he said was not sustainable in the long term, and called on governments to review regulations to underpin airline profitability.

"We are constantly walking on a tightrope with very thin margins, and there is no buffer," he said. "This industry is very, very fragile."

The International Air Transport Association, whose 230 members include Singapore Airlines and Deutsche Lufthansa, now expects global net profit to be $8.6 billion this year, down from $9.1 billion forecast in December.

Net profit is estimated at $16 billion in 2010, revised up from the $15.1 billion estimate in December.

Those profits come on revenues forecast at $594 billion this year, up from an estimated $552 billion in 2010. Revenues stand against industry debts of $210 billion, Bisignani noted.

IATA's forecasts assume an average oil price of $96 per barrel for Brent crude this year, up from $84 forecast in December, and $$79.4 a barrel in 2010.

As a result the industry's fuel bill will rise to $166 billion this year -- 29 percent of total costs -- from $139 billion or 26 percent in 2010.

Bisignani said every $1 increase in the price of a barrel of oil adds $1.6 billion in costs to airlines, which are estimated to have hedged 50 percent of their fuel purchases this year.

IATA declined to speculate whether the latest oil price increases would lead to fuel surcharges on tickets, as that is a matter for its individual members.

The improving global economy will increase demand for airline products, with passenger growth expected to be 5.6 percent this year, up from December's 5.2 percent increase, while cargo demand -- an important indicator of world trade -- is seen rising 6.1 percent, up from 5.5 percent in December.

The IATA global forecast includes wide variation in airline performance by region, with carriers in the Asia-Pacific region expected to produce a net profit margin of 4.6 percent. Airlines in the region benefit from the strong economy, but have hedged fuel prices relatively loss than those in other countries.

European airlines are the least profitable of the major regions.

(Editing by Toby Chopra)

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