|
 |
Mar-21-2012
Airline fuel costs likely to hammer profits(topic overview)
CONTENTS:
Selected Sources
Find out more on this subject
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. [1] 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. 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 "It appears that the worst of the sovereign-debt crisis in Europe has been avoided for now, but it's been replaced by rising oil prices as the number-one risk the industry faces," Mr Tyler added.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. [1] "Historically, if GDP falls below 2 per cent, the industry returns a collective loss. It would not take much of a shock to turn our very modest profit projection to a net loss." "Indeed that shock could be oil," he added. The Geneva-based trade group said its most pessimistic fears of last December have been somewhat eased. It warned then that airlines could post losses of $US8.3 billion ($A7.85 billion) if the crisis in the 17-country eurozone got much worse. The trade group says a massive liquidity operation by the European Central Bank and a second bailout for Greece have eased its concerns, at least temporarily. "It appears that a worsening of Europe's sovereign debt crisis has been avoided for now," said Tyler. "But this has been replaced by rising oil prices as the number one risk that the industry faces." IATA also upwardly revised its profits for 2011 to $US7.9 billion ($A7.47 billion), from $US6.9 billion ($A6.53 billion), saying the increase was primarily due to much better-than-expected business among Chinese carriers. IATA's forecast is for the entire aviation industry, not just its 240 member airlines that carry 84 per cent of all passengers and cargo. [2]
Tony Tyler, IATA's chief executive, said on Tuesday the industry's diminished profit forecast for 2012 could turn to losses of more than $US5 billion ($A4.73 billion) if oil prices spike to $150 a barrel due to Western tensions with Iran. "I must emphasise that the industry is fragile," he said, pointing to global growth forecasts of 2 per cent for this year. [2] Iata downgraded airlines profitability outlook primarily due to rising oil prices. It expects airlines to turn a global profit of $3 billion in 2012 for a 0.5 per cent margin. This $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. [3] MANILA, Philippines - A global aviation industry group slashed its 2012 profit forecast for airlines all over the world by $500 million as oil prices continue to soar. The Geneva-based International Air Transport Association (IATA) said in a statement on Tuesday, March 20, that it expects oil prices, based on Brent crude, to reach an average $115 per barrel this 2012 from its previous forecast of $99. [4] The International Air Transport Association has cut its forecast for global airline profits due to a sharp rise in oil prices, warning that a spike to USD$150 per barrel could lead to losses as high as USD$5.3 billion. In its financial forecast for 2012, IATA forecast industry profits of USD$3 billion on Tuesday, down from a previous estimate of USD$3.5 billion. It said that several factors had prevented a bigger downgrade including the avoidance of the eurozone crisis getting significantly worse and the improvement in the U.S. economy. It also cited the cargo market stabilizing and the slower than expected expansion in capacity which would have reduced profits. [5] A global airline body has cut its its 2012 profit projection for the industry. The International Air Transport Association (Iata) said on Tuesday that global carriers are expected to make a collective profit of US$3 billion (S$3.8 billion) this year. This is below the US$3.5 billion that was forecast three months ago. He stressed that if oil prices jump high enough, the industry may go into the red. [6]
African carriers were expected to post a collective loss of $100-million this year, as airlines struggled to make full use of available capacity, while the oil price continued to rise, the International Air Transport Association (Iata) warned on Tuesday. The organisation downgraded its industry outlook for 2012 to a profit of $3-billion, at an average price margin of 0.5%. This represented a $500-million downgrade from the organisation's December forecast. Tyler said he expected the average oil price to hover near $115/bbl, with a spike to $150/bbl possible in the second half of the year. [7]
Despite an expected rise in passenger demand, an industry group downgraded its fiscal outlook on the airlines Tuesday, citing rising oil prices. The International Air Transport Association now expects airlines to make $3 billion in profits this year, down $500 million from its earlier view provided in December. [8] IATA: The International Air Transport Association warned that the global aviation industry could run up losses of over $5 billion this year if oil prices spike. AT ISSUE: The industry trade group said a conflict with Iran, which Western powers are pressuring in light of its nuclear program, would wipe out all profits for the industry this year. That shock could be a surge in oil prices, he said. [9] GENEVA (AP) The global aviation industry has dimmed its profit outlook further, with officials cutting their earnings forecast for 2012 by a half-billion dollars to $3 billion. The International Air Transport Association says a sharp rise in oil and fuel prices is behind the downgrade from its December forecast for $3.5 billion in net profits. [10] GENEVA, March 20 (Reuters) - The International Air Transport Association has cut its forecast for global airline profits due to a sharp rise in oil prices, saying a spike to $150 per barrel could lead to losses as high as $5.3 billion. [11]
The reduction is being blamed on rising oil prices with the expected average price of a barrel during 2012 rising from an estimated $99 in December to the current figure of $115 per barrel. In January, IATA had predicted that the global airline industry could post collective losses of more than $8 billion this year if the Eurozone crisis was not resolved. Now IATA is warning that a deterioration in relations between western powers such as the U.S. and Iran over the latter's nuclear ambitions could lead to a further spike in oil prices which could tip aviation back into the red. [12] The association said that oil prices could reach $150 per barrel if the Iran crisis escalates and results in the closing of the Strait of Hormuz which is a key route for oil transportation. IATA estimates this could lead to the aviation industry losing more than €5 billion this year. "Airlines are buffeted by many forces beyond their control. [12]
Tensions between the West and Iran over Tehran's suspected nuclear weapons drive were underpinning oil prices. Iran insists its nuclear programme is strictly for peaceful purposes, but its threat to close the Strait of Hormuz, a key oil transit, has markets on edge. IATA raised its profits estimate for the sector last year to $7.9 billion from a previous forecast of $6.9 billion, thanks to better than expected earnings from Chinese carriers. U.S. airlines are also expected to deliver profits, although this is estimated now to reach just $900 million in 2012 rather than the previously forecast $1.7 billion as oil charges bite into earnings. [13] "With GDP growth projections now at 2.0 per cent and an anemic margin of 0.5 per cent, it will not take much of a shock to push the industry into the red for 2012," said Tyler. Iata revised upwards its estimated profits for 2011 to $7.9 billion from the previously forecast $6.9 billion. This was primarily owing to the much better than expected performance of Chinese carriers. [3] Airline performance is closely tied to global GDP growth, with airlines usually reporting a collective loss when GDP growth drops below 2%. Now that GDP growth projections are at 2%, IATA said it will not "take much of a shock to push the industry into the red" this year. On a happier note, the IATA revised upwards its estimated 2011 profits on the industry to $7.9 billion from $6.9 billion, led by better-than-expected performance by Chinese carriers. [8] IATA revised upwards the global industry's estimated net profit for 2011 to $7.9 billion from $6.9 billion previously. "This was primarily owing to the much better than expected performance of Chinese carriers," the organization stated. Fuel is expected to comprise 34% of airlines' average operating costs in 2012, with total annual worldwide fuel expenses for the air transport industry reaching $213 billion this year, IATA said. [14]
U.S. airlines have taken the lead in limiting expansion to gain more pricing power, pushing through fare increases to offset the latest surge in fuel prices. IATA said demand growth is expected to outstrip capacity increases in every region except Europe this year, based on schedules filed by its members. IATA dialed down its industry profit guidance for 2012 to $3 billion from the $3.5 billion forecast in December, though this is typically revised several times during the year and heavily skewed by big profits or losses at the largest airlines. [15] GENEVA — The airline industry group IATA cut its 2012 profit forecast for the airline sector to $3.0 billion (2.3 bn euros) from $3.5 billion on Tuesday as tensions in the Gulf push fuel prices up. [13]
IATA said it now projects airline industry profits for 2012 to be $3 billion, 20 percent lower than the $3.5 billion in profits forecast in December. [16]
Rising oil prices have led the International Air Transport Association (Iata) to revise its expectation for airline profits this year from $3.5 billion to $3 billion. [17] The International Air Transport Association, or IATA, says it now expects earnings will decline to $3 billion in 2012. That's down from December's forecast of $3.5 billion, based on an expectation that oil prices will average $115 a barrel. [18]
KUALA LUMPUR, March 20 (Bernama) -- The International Air Transport Association (IATA), has announced a downgrade to its industry outlook for this year, mainly due to a higher forecast for oil prices to US$115 per barrel from US$99 previously. [19]
Geneva: The airline industry's profit this year will plunge 62 per cent, a bigger drop than predicted in December, as fuel prices rise, the International Air Transport Association (IATA) said. [20] If fuel prices were to soar to $150 a barrel from about $120 at the moment, some airlines could even go bankrupt, warned International Air Transport Association chief Tony Tyler. Although the industry group cited the European debt crisis as the main risk in December 2011, this threat has now been "taken off the table," it said. [21] Soaring fuel prices amid supply fears spurred by concerns over Middle East supplies are now key threats to the industry. IATA had based its initial industry earnings estimate on a forecast fuel price of $99 a barrel in 2012, but prices have now soared to about $120, with an annual average expected at around $115. If oil prices jump to $150, "we cannot rule out the possibility of some bankruptcy, all regions will lose in this case, the most losses will be in Europe, but everywhere, there will be significant effects," said Tyler. [13] Tony Tyler, the Geneva-based trade group's chief executive, said Tuesday the profit outlook could turn to losses of more than $5 billion in 2012 if oil prices spike to $150 a barrel due to Western tensions with Iran. He told reporters, however, that fears for $8.3 billion in losses in the event the eurozone crisis veered toward catastrophe are no longer warranted. IATA revised its profits for 2011 to $7.9 billion, from $6.9 billion. [10] Tensions between the West and Iran over Tehran's suspected nuclear weapons drive were underpinning oil prices. Iran insists its nuclear programme is strictly for peaceful purposes, but its threat to close the Strait of Hormuz, a key oil transit, has markets on edge. IATA raised its 2011 earnings estimate for the sector to $7.9 billion from a previous forecast of $6.9 billion. [21]
IATA forecast on December 7 that global airline earnings in 2012 would amount to $3.5 billion, with a margin of 0.6 per cent. The price of oil has climbed about 12 per cent since IATA published its last forecast. [20] IATA expects airlines to turn a global profit of US$3.0 billion in 2012 for a 0.5 per cent margin, which is a US$500 million downgrade from the December forecast, the Geneva-based association said in a statement Tuesday. [19]
The International Air Transport Association (Iata) on Tuesday increased profit outlook for the Middle East airlines to $500 million while downgraded forecast for the industry. [3] Tony Tyler, head of the International Air Transport Association, which represents the world's biggest airlines, projected $3 billion in combined profits globally for the industry -- down more than 60% from the $7.9 billion in profits anticipated for 2011. That's $500 million less profit than the group estimated in December. [22]
IATA projected Tuesday that the world's airlines will earn aggregate net income of $3 billion in 2012, 14.3% below its industry profit forecast for the year issued in December ( ATW Daily News, Dec. 8, 2011 ) and 38.8% lower than the $4.9 billion profit it predicted for 2012 last September. [14] "With GDP growth projections now at 2.0% and an anemic margin of 0.5%, it will not take much of a shock to push the industry into the red for 2012," said Tyler. IATA expects airlines in the Asia-Pacific region to generate $2.3 billion in profit this year, and though Tyler said there were positive signs in Chinese markets, he also highlighted ongoing concerns about the health of the Indian airline industry. [15] The 2.0 percent EBIT margin shares top position with Asia-Pacific carriers. In this scenario, oil prices could spike at $150/barrel for Brent crude mid-year, for a full year average of $135. In such a scenario, global GDP growth would fall to 1.7 percent IATA warns, plunging the entire industry towards losses of over $5 billion. "Airlines are buffeted by many forces beyond their control. [23] IATA is particularly following the crisis in Iran since a worsening scenario there could result in the closure of the Strait of Hormuz, cutting off vital supply links for oil. "In this scenario, oil prices could spike at $150/barrel for Brent crude mid-year, for a full year average of $135. In such a scenario, global GDP growth would fall to 1.7%, plunging the entire industry towards losses of over $5 billion," IATA said. [4]
GENEVA (AP) -- The global aviation industry could run up losses of over $5 billion this year if oil prices spike by more than anticipated in light of tensions building over Iran's nuclear program, the industry's trade group said today. [18]
The global airline industry is doing a better job of managing capacity and demand, though another spike in fuel prices could leave it nursing a loss of more than $5 billion this year, its main trade group said Tuesday. [24]
"The risk of a worsening eurozone crisis has been replaced by an equally toxic risk - rising oil prices. The damage is already being felt with a downgrade in industry profits to $3-billion,'' he said in a telephone conference. He explained that airline performance was closely tied to global gross domestic product (GDP) growth and historically, when GDP growth drops below 2%, the global airline industry posts a collective loss. [7] "However, passenger and freight load factors were on average very low for airlines in the region, which will make it difficult to recover the rise in fuel costs," Tyler said. In this scenario, oil prices could spike at $150/bbl for crude oil by mid-year, resulting in a full-year average of $135/bbl. In such a scenario, global GDP growth would fall to 1.7%, plunging the entire industry towards losses of over $5-billion. [7]
The airline industry is at risk of becoming unprofitable if oil prices jump enough to hurt the global economy in addition to the effect on fuel costs, IATA said. [20]
The region is set to buck the worldwide trend as IATA forecast a global profit downgrade of $500m to $3bn primarily due to rising oil prices. It added that in the passenger business, load factors have improved by a slowdown in the introduction of new capacity, and long haul markets have been relatively robust. [25] STOCKHOLM (Dow Jones)--The International Air Transport Association, or IATA, Tuesday cut its forecast for airlines' net profit in 2012 due to a sharply rising oil price. [26] The International Air Transport Association (IATA) has downgraded its industry outlook for 2012 primarily due to rising oil prices. [27] The rising cost of oil is likely to have a significant impact on the airline industry in 2012 according to a revised outlook by the International Air Transport Association (IATA). [28]
This is the opinion of the International Air Transport Association (IATA), which reviewed down its estimates for the 2012 profits of the civil aviation sector from 3.5 to 3 billion Dollars consequently to the recent hike in the price of fuels. [29] Jet fuel price has shot up 9.7% to $137.1 per barrel from March of last year according to the International Air Transport Association. [30]
The latest downgrade "is primarily driven by a rise in the expected average price of oil to $115 per barrel, up from the previously forecast $99," IATA said. [14] The profit guidance cut is primarily driven by a rise in projected average price of oil to $115 per barrel from the previously forecast $99. [16]
The forecast was originally calculated with an assumed average oil price of $99 per barrel, whereas Iata's most recent analysis. Access to this content is denied because you are not logged in. [17] The association projects average oil prices rising to $115 a barrel for the year from the $99 level forecast in December. [22] The downgrade reflects a rise in the expected average price of oil to $115 a barrel, up from a previous forecast of $99. [8]
The average price year-to-date is approaching $120 and the consensus forecast for the year has been revised to $115 (from the $99 previously forecast). [23]
Delta Air Lines has said it expects a lower first-quarter profit margin of 1% to 3%, down from the 2% to 4% that it previously projected. The IATA now projects that North American carriers will deliver a profit of just $900 million this year, down from the previously forecast $1.7 billion. [22] "The risk of a worsening eurozone crisis has been replaced by an equally toxic risk--rising oil prices," IATA chief executive Tony Tyler said in a statement. By region, carriers in North America were the primary reasons for the downgrade, with the IATA reducing its view on their profit to $900 million from an earlier $1.7 billion. [8] Already the damage is being felt with a downgrade in industry profits to $3.0 billion,'' said Tony Tyler, IATA's director general and CEO. [23] The $3 billion annual profit predicted by the organization would mean that the world's airlines will operate on a mere 0.5% profit margin for the year. Given this "anemic margin," Tyler warned, "it will not take much of a shock to push the industry into the red for 2012." [14] Which is why IATA has downgraded profits for the industry by $500 million to $3 billion in 2012. [31]
Blaming a sharp rise in oil prices, IATA predicts industry profits at around 2.3 billion euros, down from a previous estimate of 2.65 billion euros. [32] Political tensions in the Gulf region increase the risk of significantly higher oil prices, the implications of which could put the industry into losses, IATA added. Globally, passenger demand is expected to grow by 4.2 percent this year, which is 0.2 percent ahead of the December forecast. [25] IATA helps its members directly by offering advice on reducing costs while improving efficiency and on improving safety standards. It also provides professional support in the form of publications, training and consulting. has warned that the aviation industry could go back into the red this year if oil prices continue to keep rising. [12]
"On the good news side, it appears that a worsening of Europe's sovereign debt crisis has been avoided for now," IATA director general Tony Tyler told a news conference. "But this has been replaced by rising oil prices as the number one risk that the industry faces." [32] "Political tensions in the Gulf region increase the risk of significantly higher oil prices, the implications of which could put the industry into losses," IATA added. [21]
"With GDP growth projections now at 2% and an anaemic margin of 0.5%, it will not take much of a shock to push the industry into the red for 2012," said Tyler. This is the case with African airlines, which are struggling to recover from low capacity use. They now have to deal with the added challenge of spiking oil prices. [7]
Oil has been trading in New York at about $107 a barrel in recent days, a nine-month high. Higher oil prices already are prompting U.S. airlines to raise domestic airfares and warn their profits will be dented. [22] Jet fuel accounts for 40% to 60% of an airline's total operating expenses. Local carriers Cebu Pacific and Philippine Airlines have reported that their profits were drastically slashed in 2011. Cebu Pacific, in particular, blamed high oil prices for its profit decline of 48%. These have led the airlines to request the Philippine aviation body to allow them to increase their "fuel surcharges," or a portion of their airfare tickets that they could pass on to consumers. [4]
North American airlines are expected next year to generate profit of $900 million, down from the $1.7 billion previously estimated, as high fuel costs are somewhat offset by better capacity utilization. [15] Latin American profits are expected to be $100 million, unchanged from the previous forecast. Performance is mixed across the region, but intense competition in some major markets and slowing economies will make it more challenging for the region's airlines to recover the increase in fuel costs they face this year. [3] For 2012, the region's airlines are expected to again deliver the largest absolute profit--$2.3 billion--which is $200 million more than estimated in December. Higher fuel costs will more than halve profits this year but the region's relatively strong economies will continue to generate more rapid growth in travel and cargo than the other large regions. [3]
In 2011, airlines have felt the punch. Cebu Pacific blamed soaring fuel prices for its massive 48% cut in net income. Philippine Airlines (PAL), which suffered labor issues in the same year, also pointed how zooming jet fuel costs contributed to its $33.5 million losses in the period October to December 2011. Airlines elsewhere are moaning the soaring of this biggest cost (or 2nd biggest next to labor) in their operating expenses. They described 2011 as a " difficult year " because of fuel costs. [30] Climbing fuel prices will cut into airline profits worldwide more sharply than anticipated this year, the industry predicted Tuesday. [22] The airline industry is being hit by taxes on tickets, high fuel prices and for flights to Europe by the Emissions Trading System. [31]
Historically, when GDP growth drops below 2.0 per cent, the global airline industry returns a collective loss. [3] "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. [7] Tyler has also called for governments to take a more strategic approach to the aviation industry: "A sustainable airline industry could deliver much more to the global economy. [28] Tyler said that "excessive taxation" being levied on airlines by governments around the world was not helping to create a sustainable aviation industry. "A sustainable airline industry could deliver much more to the global economy," he added. [12]
IATA DG and CEO Tony Tyler said well-coordinated policy measures are needed to bolster Indias troubled airline industry. [14]
Tony Tyler, head of IATA, the organization representing aviation, describes airlines as "weak but still profitable." With prices for oil having risen more than 30% he says airlines are suffering a "double hit." [31] Tony Tyler, director general and chief executive at IATA, added that 2012 is going to be a tough year for Indian airlines due to higher taxation, high airport charges and infrastructure constraints. UK carrier British Airways has suspended its code share agreement with Kingfisher after the Indian carrier cut overseas flights. [33] Tony Tyler, IATA's director general said: "2012 continues to be a challenging year for airlines. [5]
In a statement released today (March 20), the IATA said it expected airlines to turn a global profit of US$3bn in 2012, US$500m less than forecast in December (2011). [27] The association is now estimating that the world's airlines will make a collective profit of $3 billion in 2012 - down from a previous forecast of a profit of $3.5 million in December. [12] The projected profit for 2012 of $3 billion is also 62 percent lower than the $7.9 billion of net profit currently forecast for 2011. [16] Carriers' net income will fall to $3 billion (Dh11.01 billion) in 2012 from $7.9 billion last year, with the profit margin coming in at 0.5 per cent of sales, the Geneva- and Montreal-based trade group said in a statement. [20]
Reduced pessimism among purchasing managers is expected to support a moderate upturn in air cargo during the second half of the year. In December yields were forecast to be flat in 2012 for both passenger and cargo. Higher fuel costs, tighter capacity management in passenger markets and the stabilization of freight markets is now expected to drive a 2.0 per cent yield improvement in 2012 for both passenger and cargo. [3] January premium traveler numbers were up 2.9 percent on previous year levels, while economy class travelers grew by 6.1 percent. This reflects stronger business and consumer confidence in the U.S. and Asia-Pacific. Yields: In December yields were forecast to be flat in 2012 for both passenger and cargo. Higher fuel costs, tighter capacity management in passenger markets and the stabilization of freight markets is now expected to drive a 2.0 percent yield improvement in 2012 for both passenger and cargo. [23]
Overall capacity of combined passenger and cargo is expected to expand 3.2 percent, below the prior anticipated combined increase in demand of 3.6 percent. The group raised its 2012 passenger and cargo traffic yield growth outlook to 2.0 percent from the earlier forecast of being flat, reflecting higher fuel costs, tighter capacity management in passenger markets and the stabilization of freight markets. [16]
Industry capacity is expected to rise by 3.2% in 2012 while passenger and cargo demand is expected to grow 3.6%, according to the latest forecast from the International Air Transport Association, reversing the prospect of overcapacity flagged by the trade group in December. [24] The International Air Transport Association has cut its forecast for profits by the world's airlines this year. [32]
The International Air Transport Association (Iata) downgrades its prediction for airline profitability in 2012 as fuel costs increase. [17] Some of the region's economies are growing strongly and generating expanding demand for air transport. Passenger and freight load factors are very low on average for airlines in this region which will make it difficult to recover the rise in fuel costs. [3]
The International Air Transport Association (IATA) says it is in talks to reinstate India's Kingfisher Airlines in its account settlement systems, after suspending the Indian carrier for non-payment of fees. [33]
Globally, IATA said it expects airlines to turn a profit of $3bn in 2012 for a 0.5 percent margin. [25] Fast-growing Middle East carriers are expected to report a combined profit of $500 million profit in 2012, up from $300 million previously forecast, and Latin American profit is likely to come in as previously forecast at about $100 million. [15] The downgrade is primarily driven by a rise in the expected average price of oil to US115 per barrel, up from the previously forecast US$99 per barrel. [27] The outlook for the average annual oil price for 2012 was also raised by 16 percent to $115 per barrel from the previously projected $99 in December. [16] All the forecasts have been done on the basis of $99 to $100 per barrel of oil. [31]
The industry group says the rise in oil will push fuel to 34% of average operating costs, causing the overall industry fuel bill to rise to $213 billion. [8] The association's pessimism is driven by rising oil prices, as fuel consumes roughly 35% of airlines' operating costs. [22] Political tensions in the Gulf region increase the risk of significantly higher oil prices, the implications of which could put the industry into losses. [23] The risk of a worsening eurozone crisis has been replaced by an equally toxic risk - rising oil prices. [5] IATA's chief economist Brian Pearce said the organisation remained hopeful that oil prices would not spike higher, but the risk was skewed to the upside. [32] The political tensions in the Gulf region will also increase the risk of further higher oil prices. [16]
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," said Tyler. [4] No sooner has the European debt debacle gone to the back-burner - taking away one of the biggest threats to economic growth - than oil price rises become a concern. Its a worry as big, if not bigger, than the debt crisis. [31]
The global price hike has largely been the result of the geopolitical and other tensions being experienced by oil-rich nations in the Middle East and north Africa "could put the industry into losses," IATA said. [4] The global aviation body predicted that the Middle East airlines will post $500 million (Dh1.835 billion) in 2012 as compared to $300 million projected in December 2011. [3]
The 2011 profit guidance was raised from $6.9 billion, due to the significantly better-than-expected performance of Chinese carriers. [16] North American carriers are now projected to record 2012 profit of $900 million, down from previous projection of $1.7 billion. [16] Better than expected performance in 2011, particularly by the Chinese carriers--saw an upward revision of 2011 profits to $4.8 billion (from the previous estimate of $3.3 billion). [3] Middle East carriers were expected to realise profits of $500-million. [7] Asia Pacific carriers were expected to post the best performances at $4.8-billion in collective profit. [7] North American carriers were expected to deliver a profit of $900-million, while Latin American operators were expected to deliver a profit of $100-million. [7]
Iata expected operators in all world regions to post reduced profits during the year, while Europe and Africa were the only regions expected to post losses. [7] Southwest Airlines, the most consistently profitable of the big U.S. airlines, already has announced that high fuel costs will keep it from posting a profit for the first three months of the year. [22] Fuel makes up about a third of an airline's costs, according to IATA. The newest profit-forecast drop was moderated as European Union countries managed to avoid a deepening of the region's sovereign-debt crisis, the cargo market stabilised and carriers slowed their seat capacity growth more than expected, IATA said. [20] IATA says the downgrade would have been worse had it not been for the easing of the eurozone crisis, an improvement in the U.S. economy, stability in the cargo market and slower-than-expected capacity expansion. The group revised higher its view on passenger demand growth to 4.2%, which it says is a reflection of consumer confidence and stronger business travel. Major airlines including Delta ( DAL ) and United ( UAL ) started to increase the number of more profitable routes offered to travelers earlier this year after a decline throughout 2011. [8] Several factors prevented a more significant downgrade, IATA said: (1) the avoidance of a significant worsening of the Eurozone crisis, (2) improvement in the U.S. economy, (3) cargo market stabilization and (4) slower than expected capacity expansion. [23] Several factors have prevented a more significant downgrade, the IATA said. These included no significant deterioration of the Eurozone crisis; an improvement in the U.S. economy; cargo market stabilisation; and slower than expected capacity expansion. [27]
The IATA has also revealed that a gloomier outlook was avoided due to a number of factors including: the avoidance of a significant worsening of the Eurozone crisis, an improvement in the U.S. economy, a stabilisation of the cargo market, and slower than expected capacity expansion. [28]
Overall capacity (passenger and cargo combined) is expected to grow by 3.2 per cent in 2012 (based on announced schedules) which is behind the 3.6 per cent expected expansion in demand. This is a reversal of the expectation in December of capacity expansion (3.1 per cent) outstripping demand (2.9 per cent). Both passenger load factors and aircraft utilization have returned to or above pre-recession levels. [3] Passenger demand is expected to grow by 4.2 per cent, which is 0.2 percentage points ahead of the December forecast. [3]
The industry group marginally raised its forecast for passenger demand for the year by 0.2 percentage points to 4.2 percent from the prior guidance of 4.0 percent, reflecting stronger business and consumer confidence in the U.S. and Asia-Pacific. [16]
"I must emphasise that the industry is fragile. It wouldn't take much of a shock to run a net profit to a loss, and that shock could be oil,' Mr Tyler said. [6] "Historically, if GDP falls below 2 percent, the industry returns a collective loss. It would not take much of a shock to turn our very modest profit projection to a net loss." "Indeed that shock could be oil," he added. [18]
With an overall profit margin projected at 0.5%, Tyler added that "it will not take much of a shock to push the industry into the red for 2012." [22] Already the damage is being felt with a downgrade in industry profits to US$3bn." [27]
"I must emphasise that the industry is fragile,'' IATA Chief Executive Officer Tony Tyler said on a conference call. [20] IATA called for governments to take a more strategic approach to the aviation industry. "Airlines are buffeted by many forces beyond their control. [4] Citing the close historical link between GDP growth and airline performance, Tyler said: "With GDP growth predictions now at 2.0 percent and an anaemic margin at 0.5 percent, it will not take much of a shock to push the industry into the red for 2012." [5] The industry group was releasing its quarterly update on the airline industry. [16]
Prices are now more than $120 for Brent and that is hitting airlines hard. [31] European carriers face the toughest conditions. IATA expects a $600 million net loss, unchanged from its previous forecast. [15] In December 2011, the consensus forecast for 2012 stood at $99/barrel for Brent crude. [23]
The outlook remains unchanged from December with the expectation of a $600 million net loss and an EBIT margin of 0.3 per cent of revenues. [3] The $3 billion figure may sound a lot - until you realize it is against revenues of $630 billion. Its a margin of just 0.5%. [31]
European carriers were expected to post a collective loss of $600-million. [7] The overall combined passenger and cargo capacity were expected to grow by 3.2% during the year, which was behind the 3.6% expected expansion in demand. This was a reversal of December's expected capacity expansion outstripping demand. Both passenger load factors and aircraft use have returned to, or above prerecession levels. [7]
SOURCES
1. Iata warns airline fuel prices will cut earnings by $500m - The National
2. Airlines group warns over rising oil price
3. Iata lifts ME airlines' profit outlook - Emirates 24/7
4. Rising oil prices now a greater risk than European crisis - IATA
5. IATA Cuts Airline Profit Forecast
6. Iata predicts a $629 million drop in 2012 profit for airlines
7. Oil price spike to hit African airlines hard
8. Industry Group Downgrades Airlines on Rising Fuel Costs | Fox Business
9. Summary Box: Airlines warns over rising oil prices - BusinessWeek
10. Airlines dim 2012 profit outlook - KPVI News 6 - Pocatello, ID
11. IATA cuts airline profit forecast due to oil price | Reuters
12. Oil price now bigger threat than Eurozone crisis - IATA | ABTN
13. AFP: High fuel prices 'threaten airline sector'
14. IATAs 2012 profit forecast dips 14.3% to $3 billion | ATWOnline
15. IATA Cuts Forecast For Airlines' Net Profit To $3 Billion
16. IATA Cuts Airlines Profit Outlook On Fuel Prices
17. Higher oil prices replace Eurozone risk - Airfinance Journal - March 2012
18. Airlines group warns over rising oil prices | The Columbia Daily Tribune - Columbia, Missouri
19. BERNAMA - Rising Oil Prices Reducing Profitability, Says IATA
20. gulfnews : Fuel prices cut deeper into profits
21. IATA cuts 2012 airlines profit forecast as oil prices soar - The Economic Times
22. Airlines predict plunge in profits as oil prices rise - USATODAY.com
23. IATA Warning: Rising Oil Prices Reducing Airline Profits | Travel Agent Central
24. Airline Group Dims Industry Outlook - WSJ.com
25. IATA raises MidEast airlines' profit forecast by $200m - Transport - ArabianBusiness.com
26. IATA Cuts Its 2012 Forecast For Airlines' Net Profit To $3B From $3.5B - WSJ.com
27. Air industry downgrades 2012 outlook - Fruitnet.com | The Global Fresh Produce Portal
28. Airline industry facing gloomy 2012 due to rising oil prices
29. AGI.it - IATA: with oil at over 150 Dlrs, ailines risk defaulting
30. Buckle up for higher airfares (no thanks to soaring oil prices)
31. Debt crisis fades but oil fears rise Business 360 - CNN.com Blogs
32. Costly fuel to hit airline profits | euronews, economy
33. Aircargo Asia Pacific - IATA in Kingfisher talks, BA cuts link
Summarize your web search results on the fly!
Try out our innovative web service for free! |
|  |
|
