Airline profits to drop by 78 percent this year; North American airline profits to drop by 70 percent, IATA says

GENEVA, 6 June 2011.Commercial airline profits throughout the world should drop this year by 78 percent over 2010 due to the sharp rises in crude oil and jet fuel prices, unrest in the Middle East and North Africa, and the earthquake and resulting nuclear disasters in Japan, officials of the International Air Transport Association (IATA) in Geneva reported today."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," explains Giovanni Bisignani, IATA's director general and chief executive officer. Although efficiency gains over the past 10 years are balancing the rising costs of jet fuel, "there is little buffer left against further shocks,” Bisignani said in a report issued today.The world's commercial airlines in 2011 should post total profits of $4 billion, which is down 78 percent from the $18 billion net profit in 2010, IATA officials say. IATA's revised profit estimates are down even from estimates of $8.6 billion that IATA experts made in March. Global airlines this year should earn $598 billion in revenues, which is a profit margin of only 0.7 percent, IATA officials say.

The biggest reason for the expected plunge in airline profits is the high cost of fuel, IATA officials say. Airlines are expected to pay $176 billion for fuel in 2011, which is a $10 billion increase over last year. Fuel represents 30 percent of airline overhead costs, which is more than double the 13 percent 10 years ago, IATA officials say.

One bright spot is rising demand for commercial air transport of cargo and passengers, IATA officials say. Nevertheless, the organization has revised growth projections downward for cargo and passengers due to rising fuel costs.

IATA predicts passenger demand will grow 4.4 percent this year, which is 1.2 percent below the 5.6 percent previously forecast in March. Cargo demand should increase 5.5 percent this year, not 6.1 percent as predicted earlier.

Airline passenger and cargo capacity, meanwhile, should grow 5.8 percent this year, which larger than the 4.7 percent anticipated increase in demand. The gap between capacity and demand growth has widened to 1.1 percent from 0.3 percent predicted last March.

The most profitable region will be Asia-Pacific, where commercial airlines should earn $2.1 billion in profits this year, down from $10 billion last year. North American carriers should make $1.2 billion profits, down from $4.1 billion in 2010. European carriers, meanwhile, should post 2011 profits of $500 million, down from $1.9 billion in 2010.

For more information contact IATA online at www.iata.org.