Airlines can expect to generate profits of $8.6 billion in 2011 according to the International Air Transport Association (IATA), significantly less than originally forecast.
As late as December IATA – which represents some 230 airlines – was arguing carriers around the world would make $9.1 billion in profits.
However, global instability, particularly in the MENA region, has pushed up oil prices, with profits likely to fall as a result.
On expected industry revenues of $594 billion, the $8.6 billion 2011 profit equates to a net profit margin of just 1.4 per cent.
This is a 46 per cent fall in net profits compared to the $16 billion (revised from $15.1 billion) earned by the industry in 2010.
“Political unrest in the Middle East has sent oil over $100 per barrel,” explained Giovanni Bisignani, IATA’s director general.
“That is significantly higher than the $84 per barrel that was the assumption in December.
“At the same time the global economy is now forecast to grow by 3.1 per cent this year — a full 0.5 percentage point better than predicted just three months ago.
Airlines can expect to make $8.6bn in profit in 2011
Growing economies give airlines the opportunity to recover some of these added costs with additional revenues.
For example, since early 2009, rising oil prices added 25 per cent to unit costs while average fares (excluding surcharges) rose 20 per cent.
But in 2011 higher revenues are not expected to be sufficient to prevent the rise in oil prices from causing profits to shrink by 46 per cent from 2010 levels.
Air Passenger Duty
IATA also highlighted the risk of increasing taxation, particularly in price sensitive leisure markets.
In 2010, the industry saw new and increased taxes in the range of three-to-five per cent of ticket prices in the UK, Germany and Austria.
Recently, Iceland, India and South Africa have joined with plans for additional taxation.
“This is a price sensitive business. Aviation has the power to stimulate economies,” added Bisignani.
“But that ability is being compromised by adding taxes at a time when we are struggling to cope with high fuel prices just to maintain anemic margins.”