BTN Editor Elizabeth West moderates Liberty Mutual’s Michelle DeCosta, ACT’s Jennifer Steinke and Roadmap’s Jeroen van Velzen
International Air Transport Association reduced its profit forecast for the
global airline industry to $3 billion from the previous $3.5 billion projection,
primarily resulting from "the sharp rise" in oil and fuel prices.
"The downgrade would have been larger but macro-economic conditions appear
to have improved," according to IATA, which noted "no significant
worsening in the eurozone sovereign debt crisis," strengthening U.S.
economic and consumer confidence, tighter capacity controls and a "stabilized"
indicated that the "uptick in confidence" in some of the world's
largest economies "is consistent with further growth, albeit in low-single
figures, of business travel and the important premium travel segment." For
example, global premium travel in January grew 2.9 percent year over year. Overall,
IATA projected passenger demand in 2012 would increase 4.2 percent, up from the
4 percent prediction conveyed in December.
also reported that capacity growth this year should be "slower than we had
previously expected. We now expect load factors to marginally improve this
year, rather than decline, supporting both yields and unit revenues."
the specter of rising oil and jet fuel prices casts a pall over all such
optimism. IATA now projects the 2012 average price of Brent crude oil at $115
per barrel, up from the December forecast of $99. "This will push fuel to
34 percent of average operating costs," which would be up from 30 percent
last year and 26 percent in 2010, according to the association. A further spike
in fuel costs—perhaps brought on by escalating tensions in and around
Iran—would represent another "shock" that drags the global industry
back into the red.
industry is fragile," according to IATA director general Tony Tyler.
"Global forecasts are for GDP to grow by 2 percent this year.
Historically, if GDP falls below 2 percent, the industry returns a collective
loss. So it would not take much of a shock to turn our very modest profit
projection to a net loss."
to IATA, "all regions will see reduced profitability in 2012 compared to
2011, and Europe and Africa will see losses." In Europe, where airlines of
course face weakened economies and, according to Tyler, "are by far in the
most difficult situation," IATA pegged total net losses at about $600
million, unchanged from its December report. African carriers as group will
lose about $100 million, according to IATA, where passenger and freight load
factors "are very low on average."
the other side of spectrum, Asia/Pacific airlines—which powered the global
industry in 2011 to an estimated $7.9 billion profit—are expected to maintain
strong performance. IATA now expects them to post a collective 2012 net profit
of $2.3 billion as "the region's relatively strong economies will continue
to generate more rapid growth in travel and cargo than the other large regions."
The regional outlook is mixed, however, as Chinese carriers likely will post
solid numbers while Indian carriers face ongoing financial struggles.
North America, IATA predicted airlines as a group would generate $900 million
in profits, down by about half from the December forecast. "Higher fuel
costs are responsible for the downgrade, but airlines in this region will see
the smallest deterioration from last year's performance among the major
regions, as a result of the very small increases in capacity expected,"
according to IATA.
added that Middle Eastern carriers in 2012 collectively will deliver profits of
about $500 million, partly due to "relatively robust" long-haul
markets, while Latin American carriers will manage a $100 million profit,
pressured by fuel, "intense competition in some major markets and slowing
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