Airlines cut 2011: profit forecast to $4 billion

Global airlines have cut their 2011 profit forecast by more than half to $4 billion as high oil prices and turmoil in Japan, North Africa and the Middle East weigh on the industry's recovery. The International Air Transport Association (IATA), which represents most global carriers, disclosed the new forecast on Monday and also warned of a looming trade war if Europe moves ahead with plans to force airlines to join an emissions trading scheme next year. China said it would support legal action.
Airlines say the scheme, designed to tackle growing emissions from the aviation industry, will only increase costs and add to pressures already caused by the sluggish global economy. "The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel," IATA's director general, Giovanni Bisignani, told the group's annual general meeting in Singapore. "But with a dismal 0.7 percent margin, there is little buffer left against further shocks," he said.
The IATA $4 billion profit forecast compares with an $8.6 billion forecast on March 2, just before the Japan earthquake and tsunami triggered a nuclear meltdown at a power station. Since then, the Arab uprisings have spread and oil has been well above $100 a barrel.
The forecast would mark a drop of more than three-quarters from the industry's estimated 2010 profit, which was raised to $18 billion from $16 billion. Economists say the industry's outlook is a guide to the strength of cyclical recovery in developed markets and growth in emerging economies, which rely heavily on air transport. Airlines rebounded faster than expected from recession last year, helped by higher traffic and a drive to keep a lid on spare capacity. But far too rapid expansion in capacity, a series of external shocks and higher oil prices have hit the industry hard this year.
Airlines had been bracing for lower 2011 forecasts at this week's major conference as fears grow over the global economy. On Monday, shares of major US airlines slumped following the revised profit forecast. Industry leader United Continental Holdings was down 2.8 percent to $22.10 in New York, and Delta Air Lines was off 1.6 percent to $9.47. The Arca Airline index fell 1.5 percent. IATA is forecasting an average oil price of $110 per barrel in 2011, up 15 percent from $96 last year, adding to the case for airlines to raise air fares or fuel surcharges to cover the rising cost of doing business.