IATA Doubles Loss Forecast for Europe Airlines on Crisis
The International Air Transport Association almost doubled its 2012 loss forecast for European airlines and said the continent’s debt crisis could wipe out an expected global profit.
Carriers in Europe may lose $1.1 billion this year, compared with a March forecast for a $600 million loss, the airline body said today at its annual meeting in Beijing. It reiterated a forecast for a $3 billion global profit. The worldwide estimate could be reduced if the European economy worsens more than expected, the group said.
“If there’s a full-blown crisis, all bets are off,” Tony Tyler, head of IATA, which represents about 240 carriers, said in a Bloomberg TV interview yesterday. “It will have a big impact on the world economy and a huge impact on airlines.”
Global profits are already set to fall from $7.9 billion last year, as recessions in the U.K., Spain and other European countries damp demand and erode gains from lower fuel prices. Deutsche Lufthansa AG (LHA), Air France-KLM (AF) Group and International Consolidated Airlines Group SA (IAG), Europe’s three biggest full- service carriers, have all announced plans to cut staff or restructure operations following first-quarter losses.
“Europe slipping into a recession is obviously not to be welcomed,” said Andrew Herdman, the head of the Association of Asia Pacific Airlines. For Asian carriers there is “a contagion effect of reading about political uncertainty and economic slowdown elsewhere.”
IATA cut its forecast for Asia-Pacific carriers’ earnings to $2 billion from $2.3 billion. Slower growth in China and India are also damping travel, the group said. The region’s airlines, which made a $4.9 billion profit last year, have benefited little from a pick-up in cargo shipments, it said.
Singapore Airlines Ltd. (SIA) posted a loss in the quarter through March and Cathay Pacific Airways Ltd. (293) has said its first-half earnings will be “disappointing.” Qantas Airways Ltd. (QAN), Australia’s largest carrier, has forecast its first annual net loss since listing in 1995.
IATA raised its profit forecast for North American carriers to $1.4 billion from $900 million. The airlines will boost earnings from $1.3 billion last year as they refrain from adding many flights amid a 0.5 percent growth in demand, the slowest pace worldwide, the group said.
“Growth in capacity has remained reasonably low,” Tyler said. The carriers “are making good money” on a regional basis.
IATA based its earnings forecast on the assumption that Brent crude will average $110 this year. That’s down from $115 in March. Fuel will account for about 33 percent of airline costs, the same proportion as in 2008 when global oil prices spiked, the group said.
The industry body boosted its forecast for global travel demand growth to 4.8 percent from 4.2 percent after a better- than-expected first quarter. It raised its estimate for global economic growth to 2.1 percent from 2.0 percent.
An air-cargo slump has also ended because of rising confidence in economies outside of Europe, IATA said. Volumes will be little changed this year at 47.8 million tons, it said. International volumes fell 0.6 percent last year, IATA said in February.
Middle East carriers’ profit this year will fall to $400 million from $1 billion last year, partly because of slower demand for long-haul flights in Europe, IATA said. The group forecast a $500 million regional profit in March.
IATA raised its Latin American profit forecast to $400 million from $100 million because of a turnaround in the previously unprofitable Brazil market. The region had a $300 million profit last year. African carriers will lose $100 million this year after breaking even in 2011, IATA said. That’s unchanged from the previous forecast.
--Stephen Engle, Andrea Rothman and Jasmine Wang, with assistance from Christine Hah and Tian Ying in Beijing and Karolina Miziolek in Hong Kong. Editors: Neil Denslow, Robert Fenner
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