Global Airlines 2011 Profit to Drop 40% on Tax, Oil, IATA Says

Global Airlines 2011 Profit to Drop 40% on Tax, Oil, IATA Says



Airlines may post a 40 percent decline in combined profits next year on slower economic growth, higher fuel costs and austerity measures in Europe, a leading industry group said today.

Net income will drop to $9.1 billion in 2011 from $15.1 billion this year, International Air Transport Association Chief Executive Officer Giovanni Bisignani told a press briefing in Geneva. As revenue is set to grow 5.8 percent to $598 billion, the profit margin will almost halve to 1.5 percent, he said.

“Margins remain pathetic,” Bisignani said. “The recovery cycle will pause in 2011. Although the $9.1 billion profit projection for 2011 is better than we had previously forecast, next year the industry will face tougher conditions than what we are experiencing today.”

A recovery in demand for air traffic after the deepest economic downturn since World War II has been uneven, with European carriers such as Deutsche Lufthansa AG struggling to boost ticket prices in their region. Economic growth in Asia and capacity reductions in North America are helping airlines in those continents increase profit. IATA’s previous global profit forecasts for 2010 and 2011, made in September, were $8.9 billion and $5.3 billion, respectively.

‘Knife Edge’

“The industry is fragile and balancing on a knife edge,” Bisignani said. “Any shock could stunt the recovery, as we are seeing with the results of new or increased taxation on airlines and travelers in Europe.”

The industry, which lost $51 billion between 2001 and 2009, isn’t “even close” to recovering half its cost of capital, which is between 7 percent and 8 percent, Bisignani said today.

British Airways Plc, Europe’s third-largest carrier, said today that it will increase fuel surcharge on longhaul flights from Dec. 16 by 10 pounds ($16) per passenger per flight, reflecting the recent increase in oil price. That would be the first jump since June 2008, according to Richard Goodfellow, a London-based spokesman.

An increase in the average price of oil to $84 a barrel next year from $79 in 2010 will lead to fuel making up 27 percent of airline cost next year, IATA said. Jet fuel is the single largest cost item for an airline.

German Taxes

Oil traded near $90 a barrel on forecasts that U.S. crude stockpiles are declining as colder weather approaches the nation. The January contract was at $88.52 a barrel in electronic trading on the New York Mercantile Exchange at 10:16 a.m. London time. Prices have risen 12 percent this year.

Higher taxes in Germany, Austria and the U.K. will increase travel cost by a range of 3 percent and 5 percent next year, “enough to discourage travel and slow the industry recovery,” IATA said.

“This year profit have been significantly higher than we would have expected coming out of the recession,” said Jonathan Wober, an analyst at Societe Generale SA in London. “Clearly there are always risks, global GDP growth being the most important, but it seems we are still in an upswing.”

The eight-company Bloomberg EMEA Airlines Index climbed 1 percent at 11:27 a.m. in London. Air France-KLM Group, Europe’s biggest airline, gained 1.3 percent in Paris. Lufthansa added 1.3 percent in Frankfurt. British Airways rose 0.3 percent on the London exchange.

Delta, United

Net income for Asia-Pacific carriers, the most profitable group that includes Singapore Airlines Ltd. and Cathay Pacific Airways Ltd., will drop to $4.6 billion next year from $7.7 billion in 2010, IATA said.

North America airlines, led by United Airlines, Continental Airlines and Delta Air Lines Inc., are facing a decline in 2011 profit to $3.2 billion from $5.1 billion.

European airlines’ profit will fall to $100 million in 2011 from $400 million this year, IATA said. In September, IATA predicted a $1.3 billion loss for 2010 for Europe, the weakest among the regions in the forecast.

The organization cut its 2010 forecast for growth in airfreight demand to 18.5 percent from 19.8 percent, and fares will probably grow 7 percent instead of 7.9 percent as companies are completing a restocking of inventories. Demand for cargo will grow 5.5 percent next year while average prices will be little changed, IATA said.


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