IATA downgrades industry outlook
Two weeks after Giovanni Bisignani, CEO of the International Air Transport Association (IATA), called airline profits pathetic, the organization has adjusted its industry outlook from $9.1 billion to $8.6 billion. The original number was predicted in December.
“Political unrest in the Middle East has sent oil over $100 per barrel. 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% 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," Bisignani said.
The new number was arrived at by analyzing new predictions in fuel prices (Brent crude is now expected to average $96 per barrel this year); capacity (a .1 percent drop over the previously anticipated number); and taxation, which is increasing.
“This year the industry is performing a balancing act on a very thin tight-rope of a 1.4% margin. It is a structural problem that the industry has faced with an average margin of just 0.1% over the last four decades," Bisignani said. "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."
Regionally, Asia-Pacific carriers are expected to lead the way with a $3.7 billion profit (a sharp decrease from the expected $7.6 billion profit), while carriers in Africa will break even. Carriers in North America will make $3.2 billion. Middle Eastern carriers will see a $700 million profit and European carriers will see a $500 million bump, numbers that are up from expectations of $400 million and $100 million, respectively.