High fuel prices threaten airline sector, IATA warns

March 20, 2012
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A photo of an oil plant, work in progress/FILE
GENEVA, Mar 20 – The airline industry group IATA cut its 2012 profit forecast for the airline sector to $3.0 billion ($2.3 billion) from $3.5 billion on Tuesday as tensions in the Gulf push fuel prices up.

If fuel prices were to soar to $150 a barrel from about $120 at the moment, some airlines could even go bankrupt, warned International Air Transport Association chief Tony Tyler.

The latest figures foresee bigger-than-expected profits for the global airline sector last year, but a drop of about 60 percent this year.

Although IATA cited the European debt crisis as the main risk in December 2011, this threat has now been “taken off the table,” it said.

Rather, soaring fuel prices amid supply fears spurred by concerns over Middle East supplies are now key threats to the industry.

IATA had based its initial industry earnings estimate on a forecast fuel price of $99 a barrel in 2012, but prices have now soared to about $120, with an annual average expected at around $115.

“This will push fuel to 34 percent of average operating costs end see the overall industry fuel bill rise to $213 billion,” said IATA.

But if oil prices jump to $150, “we cannot rule out the possibility of some bankruptcy, all regions will lose in this case, the most losses will be in Europe, but everywhere, there will be significant effects,” said Tyler.

“Political tensions in the Gulf region increase the risk of significantly higher oil prices, the implications of which could put the industry into losses,” IATA added.

Tensions between the West and Iran over Tehran’s suspected nuclear weapons drive were underpinning oil prices.

Iran insists its nuclear programme is strictly for peaceful purposes, but its threat to close the Strait of Hormuz, a key oil transit, has markets on edge.

Meanwhile, IATA raised its profits estimate for the sector last year to $7.9 billion from a previous forecast of $6.9 billion, thanks to better than expected earnings from Chinese carriers.

For 2012, Asian carriers are expected to continue performing well, with profits of $2.3 billion seen as strong economic growth offset the impact of higher fuel charges.

US airlines are also expected to deliver profits, although this is estimated now to reach just $900 million in 2012 rather than the previously forecast $1.7 billion as oil charges bite into earnings.

European carriers would be the sector’s worst performers, with losses of $600 million seen for the year.

“While it appears that a major worsening of the eurozone crisis has been averted, many European economies are in deep recession which will see continued weakness in both the cargo and passenger business,” said IATA.

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