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Airlines group warns oil price could trigger loss of billions
Question of the Day
GENEVA — The global aviation industry could run up losses of more than $5 billion this year if oil prices spike by more than anticipated in light of the tensions building up over Iran’s nuclear program, the industry’s trade group said Tuesday.
The International Air Transport Association (IATA) says it now expects earnings will likely decline to $3 billion in 2012.
That’s down from December’s forecast of $3.5 billion, based on an expectation that oil prices will average $115 a barrel. At present, the benchmark New York rate is trading at nine-month highs around $107 a barrel.
Tony Tyler, IATA’s chief executive, said the industry’s diminished profit forecast for 2012 could turn to losses of more than $5 billion if oil prices spike to $150 a barrel due to Western tensions with Iran.
“I must emphasize that the industry is fragile,” he said, pointing to global growth forecasts of 2 percent for this year. “Historically, if GDP falls below 2 percent, the industry returns a collective loss. So it would not take much of a shock to turn our very modest profit projection to a net loss.”
“Indeed that shock could be oil,” he added. “Such a shock would link to a fall in GDP growth to 1.7 percent and we could see losses in excess of $5 billion.”
However, the Geneva-based trade group said its most pessimistic fears of December have been somewhat eased. It warned then that airlines could post losses of $8.3 billion if the crisis in the 17-country eurozone got much worse. But the trade group says a massive liquidity operation by the European Central Bank and a second bailout for Greece have eased its concerns, at least temporarily.
“It appears that a worsening of Europe’s sovereign debt crisis has been avoided for now,” Mr. Tyler said. “But this has been replaced by rising oil prices as the number one risk that the industry faces.”
Despite the seeming improvement in sentiment toward Europe, IATA said European carriers - including low-cost airlines that are performing better than other traditional competitors - will likely post collective losses of $600 million next year down from weak profits of $1 billion in 2011.
IATA also upwardly revised its profits for 2011 to $7.9 billion, from $6.9 billion, saying the increase was primarily due to much better-than-expected business among Chinese carriers.
IATA’s forecast is for the entire aviation industry, not just its 240 member airlines that carry 84 percent of all passengers and cargo.
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