Tags: Rising Oil Prices Threaten to Wipe Out Airline Profit | IATA Says

Rising Oil Prices Threaten to Wipe Out Airline Profit, IATA Says

Wednesday, 02 Feb 2011 09:50 AM

Oil prices at current levels will increase airline costs by more than this year’s projected earnings, threatening the industry’s return to profitability, the International Air Transport Association said.

IATA on Dec. 14 forecast carriers would log net income of $9.1 billion in 2011 based on oil at $84 a barrel. With crude trading $7 higher than that and every $1 increase boosting the fuel bill by $1.6 billion, costs could increase by $11 billion.

“The story this month is the sharp rise in oil prices,” IATA Chief Executive Officer Giovanni Bisignani said in a statement, adding that a sustained increase “could spoil the party” even as people start to travel again after the recession, eroding a 2.7 percent profit margin he described as “pathetic.”

Airlines posted earnings estimated at $15.1 billion last year as international passenger traffic jumped 8.2 percent, outstripping a 4.4 percent rise in capacity so that planes flew more than 78 percent full, IATA said. Freight demand increased by almost 21 percent as economic growth picked up.

Crude oil futures were trading as high as $91.32 on the New York Mercantile Exchange today. Buying kerosene accounts for 27 percent of an airline’s operating costs, according to IATA.

Airlines seek to guard against rising fuel expenses by hedging at a set price on part of their annual requirement. Network carriers such as Air France-KLM Group, the biggest in Europe, also pass costs from unhedged fuel to customers through a system of predetermined surcharges, though that can deter travel if ticket prices increase too much.

December Slowdown

The air-travel rebound slowed in December as snowfalls in Europe and North America disrupted flights. Traffic grew 4.9 percent, down from 8.2 percent the previous month, with the wintry weather cutting demand by 1 percentage point, IATA said.

The December gain was led by a 14 percent increase in the Middle East and a 12 percent jump in Africa, it said. Passenger volumes are now 4 percent higher than the pre-recession levels of early 2008. While freight is 1 percent higher, cargo tonnage has fallen 5 percent since a post-slump restocking boom in 2010.

“The challenge is to turn the demand for mobility into sustainable profits,” Bisignani said.

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Oil prices at current levels will increase airline costs by more than this year s projected earnings, threatening the industry s return to profitability, the International Air Transport Association said.IATA on Dec. 14 forecast carriers would log net income of $9.1 billion...
Rising Oil Prices Threaten to Wipe Out Airline Profit,IATA Says
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2011-50-02
Wednesday, 02 Feb 2011 09:50 AM
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