The continued rise in aviation fuel prices has forced IATA to rethink the industry profit forecast for the year, dropping it to $4bn compared with March when it was expecting the business to end this year $8.6bn in the black.
A $4bn profit compares poorly with 2010, when the industry made $18bn. For 2011, the industry is expected to generate revenues, meaning it is operating on a profit margin of 0.7%.
Giovanni Bisignani, IATA’s director general and CEO, described the 0.7% margins as “dismal” saying that "there were no buffers against further shocks."
The earthquake, tsunami and nuclear leak in Japan, and the unrest in North Africa and the Middle East, are not helping the airline industry, but it is fuel costs which are the main worry. IATA claims that fuel will cost an average of $110 per barrel, compared with previous estimates of $96 per barrel.
Business travel appears to be “more robust” than leisure, IATA said, driven by “growing world trade and business investment.” However, this year business travel is expected to grow at 5-6% compared with 2010 which was 9% ahead of the previous year.
European carriers will make $500m profit in 2011 compared with nearly $2bn in 2010. Long-haul will perform strongly in the region, with IATA saying long-haul capacity out of Europe will increase by 4.8% compared with a 3.6% increase in demand.
The most profitable region in 2011 will be the Far East. However, its projected profit for 2011 of $2.1bn is a big drop on last year when profits came in at $10bn.
Bisignani said; “That we are making any money at all in a year with this combination of unprecedented shocks is the result of a very fine balance."