Home » Aviation, Breaking News » IATA: Euro crisis threatening aviation’s weak profits

Global aviation profits for 2012 are set at $3 billion, unchanged since the last update in March, but the euro debt crisis remains a big threat to the industry’s profitability outlook, an association of global airlines said.

The “continued and deepening” European sovereign debt crisis is offsetting the gains from a fall in oil prices, stronger-than-expected growth in passenger traffic, and a bottoming out of the freight market, according to the revised industry outlook by the International Air Transport Association (IATA).

“The $3.0 billion industry profit forecast has not changed. But almost everything in the equation has. Demand has been better than expected, so far this year. And fuel prices are now lower than previously anticipated, but that’s on the expectation of economic weakness ahead,” said Tony Tyler, IATA’s director general and CEO. “The Eurozone crisis is standing in the way of improved profitability.”

This will be the second year of declining returns since airline profits peaked in 2010 at $15.8 billion with a net profit margin of 2.9 percent. In 2011, industry profits fell to $7.9 billion for a 1.3 percent net profit margin. This year’s projected $3 billion industry profit would yield a net profit margin of just 0.5 percent, the IATA said in a news release on June 11.

“Although airlines face the common challenges of high fuel prices and economic uncertainty, the regional picture is diverse. Carriers in the Americas are seeing improved prospects for 2012. The rest of the world is seeing reduced profitability. For European carriers, the business environment is deteriorating rapidly resulting in sizable losses,” said Tyler.

Compared with the forecast in March, North American and Latin American carriers are expected to see improved prospects. The outlook for African carriers is unchanged. But the outlook for European, Asia-Pacific, and Middle Eastern carriers has been downgraded, with European losses now expected to be $1.1 billion.

North American carriers are expected to post a profit of $1.4 billion, up from the March projection of $900 million and a slight improvement on the $1.3 billion that the region’s carriers made in 2011.

European carriers are expected to post the industry’s largest aggregate losses of $1.1 billion as the Eurozone crisis continues. This is a $500 million downgrade from the March forecast.

Asia-Pacific carriers are expected to make the largest contribution to industry profits ($2 billion), even with a $300 million downgrade from the previous outlook, due to the weak first quarter performance. This is less than half the $4.9 billion profit that the region delivered in 2011 and a quarter of the $8 billion achieved in 2010. Asian carriers make up about 40 percent of the global air cargo business and the weakness of this market in 2011 was the reason why there was a large decline in the region’s profits.

The Middle East carriers are expected to post profits of $400 million, down from the March projection of $500 Million. This is a significant drop compared with 2011, when the region’s carriers returned a profit of $1 billion.

Latin American carriers are expected to post profits of $400 million. This is a $300 million improvement compared with the March projections.

The outlook for African carriers is unchanged with an expected loss of $100 million. This is a downgrade on the break-even performance in 2011.

“There has been no let-up in the volatility of the economic environment. A few months ago, an oil price crisis was the biggest risk. Now all eyes are back on Europe. Markets are expecting the Eurozone sovereign debt crisis to intensify and economic damage to follow… The next months are critical and the implications are big,” said Tyler.

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