Oil prices to halve airline profits
High oil prices will slash profits in the global aviation sector almost in half this year to $8.6bn (€6.2bn), the International Air Transport Association (IATA) has warned.
The organisation said yesterday that an already muted profit forecast it issued in December had now been cut further as fuel prices continued to rise on the back of tension in Africa and the Middle East.
The IATA had previously estimated that airlines would return profits of about $9.1bn (€6.5bn) in 2011, but yesterday it revised that down to its new forecast, which would represent a 46pc fall on 2010 profit levels.
IATA director general Giovanni Bisignani said that, with oil prices now steady above $100 a barrel, the assumption issued in December was no longer tenable, even as the global economy was expected to grow by 3.1pc this year.
"Stronger revenues will provide only a partial offset to higher costs," said Mr Bisignani. "Profits will be cut in half compared to last year and margins are a pathetic 1.4pc."
The IATA has based its calculations on an average price per barrel of oil for 2011 of $96.
It said that including the impact of fuel hedging, which is roughly 50pc of expected consumption, this would increase the airline industry fuel bill by $10bn to a total of $166bn (€120bn). Fuel now accounts for 29pc of airlines' total operating costs, according to the IATA. This week, Aer Lingus management said that high fuel costs this year would compress margins and added that if oil remained at its current price levels, its fuel bill in 2011 would rise by about €31m.