Air Transport Takes Another Hit

Top Quote Corolla Financial Report: The International Air Transport Association (IATA) has said that profits for this year are set to plummet by 78%. End Quote
  • (1888PressRelease) June 28, 2011 - The International Air transport Association has cut its global industry profit forecast to $US 4 billion, this compares to March's $US 8.6 bn profit forecast and a revised estimate for last year of $US 18 bn.

    This week, they have announced a new expected profit for the airline industry in 2011: $4bn, a near 80% decline compared to profits of $18bn in 2010. IATA has said that the rising cost of fuel is denting profits at major carriers. IATA used an average oil price of $96 for a barrel for Brent crude when calculating its profit forecast in March. Since then, oil prices have passed $110 a barrel. The organisation also suggested that some international freight business could be lost to less expensive sea shipping competitors.

    However, airlines in Asia-Pacific are expected to remain the most profitable in the sector. According to IATA, carriers in the region are forecast to earn $2.1bn in 2011, the highest out of all the regions, and demand for air travel in the region is expected to increase by 6.4% in 2011.

    Last month, the International Energy Agency said high oil prices could hit the global economic recovery.

    Lower demand from Japan in the aftermath of its crisis may also drag down growth. Japan's domestic air travel fell 31% in April, compared with the same month a year ago, the latest figures show. IATA said international traffic to Japan was down by about 20%. Widespread destruction and fears of a nuclear crisis at the Fukushima Daiichi plant have hurt travel demand in the country.

    On the other hand, China has seen a growth in domestic demand for air travel - the market grew by 10.8% in April, compared with 15% growth during the same month last year. Robust growth in India will also offset the impact of the Japanese earthquake and tsunami, making Asia-Pacific the only area where demand increases are expected to outpace capacity growth.

    The IATA financial monitor report says global airline shares advanced 5 per cent in May as jet fuel prices fell from April highs. So far, global airline share prices have fallen almost 10% this year, despite a slight recovery prompted by lower fuel prices last month. The analysis was mixed on future fuel prices, raising doubts about on-going speculation and noting that expansionary monetary policy had driven investment in commodities. Market expectations of "a sharp deterioration in profitability" mean they were still down 8 per cent this year and, with the exception of the US, close to where they were when oil prices spiked in 2008.

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