ASEAN KEY DESTINATIONS
Airlines face difficult year
The International Air Transport Association (IATA) yesterday reduced its 2011 industry profit forecast by 54 percent to US$4 billion from $8.6 billion in March.
Given projected revenues of $598 billion this year, the $4-billion profit forecast represents a 0.7 percent margin.
"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," director-general Giovanni Bisignani told the group's 67th annual meeting yesterday.
Fuel is the main cause of the reduced profitability, he pointed out. IATA expects Brent crude to average $110 a barrel this year, up from an earlier forecast of $96.
For each dollar increase in the oil price, airlines face an additional $1.6 billion in annual costs. With half of its fuel requirements hedged at 2010 prices, the industry's 2011 fuel bills will rise by $10 billion to $176 billion. Fuel comprises 30 percent of airline costs, more than double the 13% of 2001, he said.
Despite high energy prices, world trade and corporate earnings continued to improve. As a result, IATA forecasts global GDP will expand this year by 3.2 percent, which is supporting continued growth in demand for air transport, according to the IATA chief.
However, IATA has cut its growth forecasts because of higher fuel costs. Passenger demand is expected to grow 4.4 percent this year, below the 5.6 percent forecast in March. Cargo demand is expected to rise 5.5 percent, not 6.1 percent as predicted earlier.
The number of price-sensitive leisure travellers has fallen 3-4 percent over the past five months, reflecting higher fuel prices and, in Europe, new passenger taxes. Less price-sensitive premium travel has been better, driven by growing trade and investment. Premium passenger growth has dipped from 9 percent last year but is expected to be close to the historical trend this year at 5-6.
In Asia-Pacific, IATA has cut its profit forecast to $2.1 billion from $3.7 billion - and from actual profits of $10 billion last year - though airlines in the region remain the most profitable worldwide.
Airlines in this region are more exposed than others to cargo markets and fuel price fluctuations.
Asia-Pacific airlines carry 40 percent of all air freight, while low labour costs and relatively low hedging mean fuel accounts for a bigger proportion of total costs.
In addition, the impact on travel of Japanese earthquakes and tsunami are expected to dent the region's prospects for the remainder of the year.
However, strength in China and India means Asia-Pacific is the only region where demand increases (6.4 percent) are expected to outpace capacity growth (5.9 percent).
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