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Airline industry profits to fall 78%

Last updated on: June 7, 2011 09:27 IST

Airline industry profits to fall 78%

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Devjyot Ghoshal in Singapore

The International Air Transport Association, which represents 93 per cent of scheduled air traffic worldwide, said on Monday the airline industry globally was likely to make a profit of just $4 billion this year.

The forecast represents a 54 per cent fall compared to estimates put out by the trade body in March, and is 78 per cent lower than the $18-billion profit that the industry recorded in 2010.

"Natural disasters in Japan, unrest in West Asia and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year.

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Image: Giovanni Bisignani.

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Airline industry profits to fall 78%

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"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," IATA Director General and CEO Giovanni Bisignani said.

"The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7 per cent margin, there is little buffer left against further shocks," he added.

The high cost of fuel -- with average oil prices expected to remain around $110 per barrel in 2011, as against previous forecasts of $96 per barrel -- is the main cause for the fall in profitability.

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Airline industry profits to fall 78%

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For each dollar increase in the average annual oil price, airlines face an additional $1.6 billion in costs.

"We have built enormous efficiencies over the last decade. In 2001, we needed oil below $25 per barrel to be profitable.

"Today, we are looking at a small profit with oil at $110 per barrel," said Bisignani.

Although revised downwards, passenger and cargo demand is expected to grow by 4.4 per cent and 5.6 per cent, respectively, while overall capacity of both segments is likely to expand by 5.8 per cent, higher than the previous estimate of 4.7 per cent.

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Airline industry profits to fall 78%

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Meanwhile, led by growth in China and India, carriers in the Asia-Pacific region are expected to rake in profits of about $2.1 billion, making this the most profitable region for airlines.

"Even so, this is dramatically down from the $10-billion profit that the region achieved in 2010.

"Airlines in this region are more exposed than others to cargo markets and fuel price fluctuations. Asia-Pacific airlines carry 40 per cent of all air freight volumes, while low labour costs and relatively low hedging means fuel accounts for a bigger proportion of total costs," the statement said.

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India on IATA's Wall of Shame

The International Air Transport Association on Monday put India on the trade body's "wall of shame" along with the UK, Germany and Austria, while calling for a stop to excessive taxation on the aviation industry.

"The UK, Germany, Austria and India need a textbook on aviation's economic role. And the first chapter is basta (enough) to more taxation," IATA director general and chief executive officer Giovanni Bisignani said.

IATA is opposed to India's service tax on air tickets, which costs the industry up to $450 million, and is 'in complete contravention of International Civil Aviation Organisation rules,' it claims.

Taxing aviation does not pay, Bisignani said, while warning that governments should not 'kill the goose that lays golden eggs'.



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