Breaking Travel News

IATA 2011: IATA slashes profit expectations on fuel concerns

Officials at the International Air Transport Association have further downgraded profit forecasts for the airline industry, as natural disasters, rising fuel costs and political unrest all take a toll.

In total, the trade body, which represents 230 airlines around the world, now expects profits of $4 billion for 2011, a 78 per cent drop compared with the $18 billion net profit recorded last year.

On expected revenues of $598 billion, a $4 billion profit equates to a 0.7 per cent margin, IATA added.

“That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance,” said IATA director general Giovanni Bisignani.

“The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel.


Key to reduced profitability among airlines is the rising cost of fuel.

The average oil price for 2011 is now expected to be $110 per barrel of Brent crude, a 15 per cent increase over the previous forecast of $96 per barrel.

For each dollar increase in the average annual oil price, airlines face an additional $1.6 billion in costs, argue IATA, with fuel now representing 30 per cent of all costs at airlines.

“We have built enormous efficiencies over the last decade,” continued Bisignani.

“In 2001, we needed oil below $25 per barrel to be profitable. Today, we are looking at a small profit with oil at $110 per barrel.”

The cost of oil has been pushed up by political unrest in the Middle East, which has cut supply in some areas, while speculation has played a role.

IATA points out significant spare capacity in the system could be utilised to increase supply and potentially cut prices.


Aviation in Japan is also a cause of concern.

The March 11th earthquake and tsunami which triggered a crisis at the Fukushima nuclear power plant has hit the industry hard.

The disaster saw a drop of 31 per cent in demand for domestic travel in Japan during April when compared with the previous year, according to IATA.

Internationally, Japan saw air traffic fall by 20 per cent in April, which has knocked one per cent off global international travel.