IAG says oil, crisis to hurt airline sector

Reuters: European airlines can expect another tough year in 2012 due to rising fuel costs and slow demand amid the economic crisis, the chairman of the merged British Airways-Iberia group International Airlines Group (IAG) said.

“Demand is weak, profitability is falling, it will be another difficult year,” Antonio Vazquez said at an air industry event in Madrid.

Iberia and British Airways have been hit on short to medium haul routes by low cost carriers and higher fuel prices.

According to industry association IATA, airline profits will fall to $300 million in 2012 from $1.4 billion in 2011. The figure includes low-cost and Europe’s 35 traditional carriers.

Vazquez added that new curbs on greenhouse gas emissions next year would also erode the industry’s profitability.

“Climate change is a priority for us, and we are not against including airlines in emission rights schemes. But this European program will hit earnings,” he said.  From Jan. 1 2012, about 4,000 airline operators will face emission limits on all flights into or out of the European Union and must submit permits for each tonne of carbon dioxide released.

Airlines will receive 85 percent of their required carbon emission permits for free in 2012 -- the first year the sector is included in the EU’s emissions trading scheme (ETS), but that will then fall to 82 percent from 2013-2020.