Bloomberg News

Airlines’ 2012 Profit Forecast Cut by IATA on Euro Debt Crisis

December 09, 2011

Dec. 7 (Bloomberg) -- The airline industry’s profit next year will fall 49 percent, more than predicted earlier, as the sovereign-debt crisis in the euro region hurts economic growth, the International Air Transport Association said.

Net income will drop to $3.5 billion in 2012 from $6.9 billion this year, with the profit margin declining to 0.6 percent of sales from 1.2 percent, IATA Chief Executive Officer Tony Tyler told reporters in Geneva. The trade group forecast in September that global airline earnings in 2012 would total $4.9 billion. The industry may be unprofitable next year should the debt crisis “spiral out of control,” IATA said.

“In the past, whenever we’ve seen a small decline in travel markets caused by an economic deterioration, it’s very difficult for other markets to uncouple,” IATA Chief Economist Brian Pearce said at the news conference. “Problems in Europe are likely to affect the rest of the world.”

European Union leaders are scheduled to meet Dec. 8-9 in a new push to stave off debt defaults by some governments in the region. Even a “relatively benign outcome” to the crisis will involve a short recession in Europe, IATA said in a statement today. Airlines in the region may report “small” losses next year, in contrast to North American and Asian carriers maintaining or raising earnings, the association said.

Air France Forecast

Air France-KLM Group, Europe’s biggest airline, predicted in November that it will post a full-year loss, saying rising fuel costs and a sluggish economy would prevent it from breaking even. Second-ranked Deutsche Lufthansa AG, which is predicting an operating-profit decline for 2011, said last month that it’s halting all non-essential investments for the next six months.

Airline-industry earnings will be helped by capacity cuts in North America that are “providing some protection to profitability,” as well as by travel growth in Asia, especially China, IATA said. In the event that the European debt crisis widens to hurt banks and the rest of the global economy, carriers may post a loss of $8.3 billion, it said.

The average price of oil in 2012 is likely to fall to $99 a barrel from an estimated $112 this year, IATA said. Jet fuel and labor are typically the largest costs at airlines. Passenger demand will probably rise by 4 percent, slower than the 4.6 percent growth previously estimated, while industry revenue will increase 3.7 percent to $618 billion.

--Editors: Tom Lavell, Robert Valpuesta

To contact the reporter on this story: Alex Webb in Geneva via awebb25@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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