Iata warns airline fuel prices will cut earnings by $500m

The world's airlines will be US$500 million worse off this year as fuel prices drive down their margins at a steeper rate than previously predicted, says the International Air Transport Association (Iata).

The agency yesterday downgraded its outlook for this year, saying it expected a 62 per cent fall in industry profits to US$3 billion (Dh11.01bn), from $7.9bn last year, and margins pinched to 0.5 per cent of sales.

Its previous outlook, issued in December, said airline earnings for this year would be $3.5bn, with a margin of 0.6 per cent.

"I must emphasise that the industry is fragile,'' Iata's chief executive Tony Tyler said, and he issued a warning that the industry might become unprofitable.

"It wouldn't take much of a shock to turn a net profit to a loss, and that shock could be oil."

Oil was to blame for the forecast being cut, he said, citing a 12 per cent rise in prices since Iata published the December forecast. Fuel makes up about a third of airline costs.

But the latest forecast could have been worse, said Mr Tyler. It had been helped by European Union countries avoiding a deepening of the region's sovereign-debt crisis, and a better than predicted performance by the United States economy.

In its previous forecast Iata said Europe's sovereign-debt crisis, and its effect on economic growth, were the biggest threat to airline profitability. And it predicted then that the price of oil would fall to $99 a barrel from an estimate of $112 for last year, as economic growth waned.

"It appears that the worst of the sovereign-debt crisis in Europe has been avoided for now, but it's been replaced by rising oil prices as the number-one risk the industry faces," Mr Tyler added.

Iata revised upwards its estimated profits for last year to $7.9bn from the previously forecast $6.9bn. This was primarily owing to a better than expected performance by Chinese carriers.

The agency also said passenger and cargo capacity would grow by 3.2 per cent this year, based on announced schedules - a figure that lags behind the 3.6 per cent expected expansion in demand, Iata said.

That represents a reversal of expectations in December, when Iata predicted a capacity expansion of 3.1 per cent, outstripping demand of about 2.9 per cent.

dblack@thenational.ae

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