Airline Profits to Slump by Half in 2011 on Soaring Cost of Fuel

Airlines stand to earn almost 50 percent less this year than in 2010 as rising oil prices limit the benefits of a rebounding economy, the International Air Transport Association predicted.

IATA cut its forecast for industry profit to $8.6 billion from the $9.1 billion projected three months ago. In 2010, airlines earned a combined $16 billion. IATA raised its oil- price prediction to $96 a barrel for Brent crude from $84, lifting the industry fuel bill by $10 billion to $166 billion.

“There is very little buffer for the industry to keep its balance as it absorbs shock,” IATA Chief Executive Officer Giovanni Bisignani said in a statement. “Today, oil is the biggest risk. If rises stall the global economic expansion, the outlook will deteriorate very quickly.”

Brent futures rose to as much as $119.79 a barrel last week on concern turmoil spreading across the Middle East may disrupt supplies from Iran, OPEC’s second-largest producer. Fuel will account for 29 percent of total operating costs for airlines this year, IATA said.

IATA predicted revenue of $594 billion for the industry this year, for a profit margin of 1.4 percent. Airlines as a group have lost money in seven of the last 10 years.

To reflect a strengthening global economy, IATA lifted its passenger growth forecast to 5.6 percent from 5.2 percent, and cargo growth to 6.1 percent from 5.5 percent. Asia Pacific carriers are expected to have the largest collective profit this year, at $3.7 billion, and the highest operating margins, at a projected 4.6 percent, IATA said.

North American carriers will deliver $3.2 billion in profit, unchanged from the previous forecast and down from $4.7 billion profit 2010, IATA said. European carriers are projected to bring in collective profits of $500 million, up from the previous forecast of $100 million.

While a weaker euro is stimulating exports, outbound freight and long-haul business travel, Europe’s carriers will still be the least profitable among the major regions, with an expected operating margin of 1.1 percent, IATA said.

To contact the reporter on this story: Andrea Rothman in Paris at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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