Airline profits to fall by half: IATA

Rising oil prices led a global airline industry organization to cut its profit outlook for the sector Wednesday.

The Geneva-based International Air Transport Association cited higher fuel and other costs as it lowered its earnings estimate to $8.6 billion US from the $9.1 billion it projected in December.

That would be a 46 per cent drop in net profits compared to the $16 billion the industry earned in 2010.

"Political unrest in the Middle East has sent oil over $100 per barrel," IATA CEO Giovanni Bisignani said in a release.

"That is significantly higher than the $84 per barrel that was the assumption in December."

Given expected industry revenues of $594 billion, the new forecast calls for a net profit margin of 1.4 per cent.

"Today oil is the biggest risk. If its rise stalls the global economic expansion, the outlook will deteriorate very quickly," said Bisignani.

IATA raised its 2011 average oil price assumption to $96 per barrel of Brent crude.  Brent, the Asian and European benchmark, traded Wednesday at $116.

Given that the industry hedges about half its consumption, IATA projected an industry-wide fuel bill in 2011 of $166 billion, an increase of $10 billion from its December estimate.

Fuel, it said, is now estimated to represent 29 per cent of total operating costs, up from 26 per cent in 2010.

Growing economies will allow airlines to recover some of these added costs with additional revenues, IATA said, but not enough to prevent profits from shrinking from 2010 levels.

IATA, which has 230 member companies, said every one-dollar increase in the price of oil adds $1.6 billion in costs for the global airline industry.