Airline profits will suffer with rising oil price: IATA

2nd February 2011, Comments 0 comments

Airline association IATA warned on Wednesday that a sustained increase in oil prices could "spoil the party" for recovering air travel and the industry's quest for lasting profits.

The International Air Transport Association (IATA) is predicting that passenger traffic will grow for the second consecutive year after its crisis-driven drop in 2008.

But net profits for airlines as whole are expected to fall by 40 percent to 9.1 billion dollars in 2011.

"Airlines ended the year slightly ahead of early 2008 volumes, but with a pathetic 2.7 percent profit margin," said IATA Director General Giovanni Bisignani.

"The challenge is to turn the demand for mobility into sustainable profits," he added.

IATA's current 2011 profit forecast is based on an oil price of $84 per barrel for Brent crude, but prices are hovering around $100 a barrel with the political turmoil in Egypt.

"Fuel accounts for 27 percent of operating costs and a sustained rise in the oil price could spoil the party," Bisignani said.

"For every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional 1.6 billion dollars in costs," he added.

Demand for air travel grew by 8.2 percent in 2010 and by 20.6 percent for air freight, outstripping the growth in capacity, according to the association.

IATA represents some 230 carriers that account for more than 90 percent of scheduled air traffic globally but does not include many of the big budget airlines.

© 2011 AFP

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