Rising oil price dents IATA profit forecast

Rising oil price dents IATA profit forecast    The International Air Transport Association on Wednesday downgraded its 2011 profit outlook for the airline industry to $8.6 billion, from the $9.1 billion it estimated in December, due to the toll higher oil prices might take on the business.
   'Political unrest in the Middle East has sent oil over $100 per barrel,' said Giovanni Bisignani, IATA's director general and chief executive officer. 'That is significantly higher than the $84 per barrel that was the assumption in December. At the same time the global economy is now forecast to grow by 3.1 percent this year — a full 0.5 percentage point better than predicted just three months ago. But stronger revenues will provide only a partial offset to higher costs. Profits will be cut in half compared to last year and margins are a pathetic 1.4 percent.'

Bisignani

   The projected profits would be 46 percent lower than the $16 billion (revised from $15.1 billion) earned by the industry in 2010.
   IATA raised its 2011 average oil price assumption to $96 per barrel of Brent crude (up from $84 in December). Including the impact of fuel hedging, which is roughly 50 percent of expected consumption, that would increase the industry fuel bill by $10 billion, to a total of $166 billion. Compared to levels in 2010, oil prices are now expected to be 20 percent higher in 2011, with fuel now estimated to represent 29 percent of total operating costs (up from 26 percent in 2010).
   'This year the industry is performing a balancing act on a very thin tightrope of a 1.4 percent margin,' Bisignani said. 'It is a structural problem that the industry has faced with an average margin of just 0.1 percent over the last four decades. There is very little buffer for the industry to keep its balance as it absorbs shocks. Today oil is the biggest risk. If its rise stalls the global economic expansion, the outlook will deteriorate very quickly.'