IATA says airline profits to plunge this year

[June 06, 2011]  SINGAPORE (AP) -- Airline profits will likely plummet this year because of natural disasters, political violence and higher fuel prices, an industry group said Monday.

Airlines will probably earn about $4 billion in 2011, down from $18 billion last year, the International Air Transport Association said. IATA's previous forecast in March estimated 2011 profits of $8.6 billion.

"Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations," IATA Director General Giovanni Bisignani said in a statement. "That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance."

Higher fuel costs -- crude rose to $115 last month from $84 in February -- are the largest obstacle to airline profitability, IATA said.

The industry's fuel bill will likely rise by $10 billion this year to $176 billion and fuel now accounts for 30 percent of an airline's costs, up from 13 percent in 2001, IATA said.

Airlines are counting on the global economy continuing to grow to help offset higher oil prices. Passenger numbers will likely increase 4.4 percent this year while cargo should grow 5.5 percent, though both forecasts are below IATA's March estimates.

"The corporate sector is cash-rich, business confidence is high, and world trade continues to expand," IATA said. "The key risk to this outlook is a weakening of global economic growth."

IATA expects a razor thin 0.7 percent profit margin for airlines this year on revenue of $598 billion.

[Associated Press; By ALEX KENNEDY]

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