The (IATA) downgraded its forecast for industry profitability in 2012.
The body expects airlines globally to make a combined $3 billion profit, down from $3.5 billion as predicted earlier. But it now expects airlines to have posted a $7.9 billion profit in 2011, compared to its earlier forecast of $6.9 billion as Chinese carriers performed much better than expected.
The change for 2012 is due to the expected increase in the average oil price for the year. Whereas IATA’s previous estimate was based on $99 per barrel, the association now assumes an average price of $115. The downgrade was not more significant because the Eurozone debt crisis did not significantly worsen, the U.S. economy improved, cargo markets stabilized and capacity was expanded slower than anticipated.
“The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk, rising oil prices,” CEO Tony Tyler said. He warns that with the profit margin now at 0.5% “it will not take much of a shock to push the industry into the red for 2012.”
IATA believes airlines will expand capacity by 3.2% on 3.6% more demand leading to higher asset utilization. Load factors and utilization have already returned to pre-recession levels.
As far as different regions are concerned, North American airlines will see its profits drop from $1.7 billion to $900 million. European carriers are expected to lose $600 million, according to IATA. The body raised its profit guidance for Asia-Pacific airlines to $2.3 billion from $2.1 billion and for Middle Eastern airlines from $300 to $500 million. The forecast for Latin America is unchanged at a $100 million profit and African airlines are to lose the same amount.