Home » Aviation, Breaking News » IATA cuts industry forecast due to ‘toxic’ oil prices

The International Air Transport Association (IATA) downgraded its global industry outlook for 2012 to $3 billion from $3.5 million last December on account of rising oil prices.

IATA said on March 20 that oil prices are expected to increase to $115 per barrel, up from the previously forecast of $99.

If the crisis in Iran escalates, it could see the closure of the Strait of Hormuz that could lead to the cutting off of vital supply links for oil and plunging the entire industry towards losses of over $5 billion, the group added.

“While we have seen some improvements in economic prospects any further significant rise in the fuel price will almost certainly turn weak profits into losses,” said Tony Tyler, IATA’s director general and CEO.

The association said several factors prevented a more significant downgrade, including the avoidance of a significant worsening of the eurozone crisis, an improvement in the U.S. economy, cargo market stabilization, and a slower-than-expected capacity expansion.

“[The year] 2012 continues to be a challenging year for airlines. The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk—rising oil prices. Already the damage is being felt with a downgrade in industry profits to $3.0 billion,’’ said Tyler.

IATA revised upwards its estimated profits for 2011 to $7.9 billion from the previously forecast $6.9 billion, primarily owing to the much-better-than-expected performance of Chinese carriers.

In the air cargo field, IATA forecasts a moderate upturn during the second half of the year as markets have stabilized at low levels in the fourth quarter of 2011. The pattern of rising sea freight and low level of air cargo is linked to Asian economies buying bulk commodities while Western consumer confidence is weak.

All regions are expected to see reduced profitability in 2012 compared to 2011, and Europe and Africa will see losses, IATA added.

Asia-Pacific carriers continue to perform well. A better-than-expected performance in 2011, particularly by the Chinese carriers, saw an upward revision of 2011 profits to $4.8 billion (from the previous estimate of $3.3 billion).

For 2012, the region’s airlines are expected to again deliver the largest absolute profit—$2.3 billion—or $200 million more than estimated in December.

Higher fuel costs will more than halve profits this year but the region’s relatively strong economies will continue to generate more rapid growth in travel and cargo than the other large regions, IATA said.

 

Photo: The-Lane-Team

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