IATA cuts airline profit forecast due to oil price

REUTERS: The International Air Transport Association has cut its forecast for global airline profits this year 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.

In its financial forecast for 2012, IATA forecast industry profits of $3 billion on Tuesday, down from a previous estimate of $3.5 billion. The revised forecast implies an average profit margin of 0.5 percent, down from 0.6 percent in the forecast IATA made in December.

“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“But this has been replaced by rising oil prices as the number one risk that the industry faces.”

He said there were mitigating factors for airline profits, such as fuller passenger cabins and some signs of optimism among purchasing managers, which should increase freight revenues in the second half of the year.

But the overall situation remained fragile, he said, since global forecasts are for economic growth of 2 percent this year, which is historically the break-even point for the industry.

“So 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.”

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.