IATA AGM: Bisignani offers profit warning as fuel costs rise

Higher fuel costs, unrest in the Middle East and Africa and natural disasters in Japan will lead to a halving of forecast industry profits this year warned IATA director general Giovanni Bisignani at today's formal opening of the IATA AGM in Singapore

The airline association downgraded its profit expectations for the year from the $8.6 billion it forecast in March to $4 billion.. The revised profit forecast figure is less than a quarter of the $18 billion profit the industry made in 2010.

Speaking at the opening session Bisignani said the key to the slump in profit expectations is higher fuel costs predicting the average price of Brent crude oil increasing by more than 15% to $110 per barrel for the year.

Bisignani said these fuel increases meant most airlines would see 30% of their costs coming from fuel - more than double what it was a decade ago. "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, Bisignani said

"The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7% margin, there is little buffer left against further shocks."

While IATA has raised its expectations for global GDP growth projections by 0.1 points to 3.2%, it has cut its forecast for demand growth. It now sees passenger growth more than a point lower this year at 4.4%, while projecting cargo growth of 5.5% compared to the 6.1% earlier predicted.

And though it expects improved yields for the year - doubling its previous forecast for passenger and cargo yield growth to 3% and 4% respectively - it notes higher fares impact price-sensitive demand and that airlines not expected to be able to offset higher costs with increased revenues.

IATA also sees demand falling further behind airline capacity growth this year, putting more pressure on load factors. It expects airlines to increase capacity 5.8%, higher than previously forecast, and for a widened gap of 1.1% between capacity and demand growth.