Global airlines are bracing for Europe’s debt crisis to worsen during the year, warning it would wipe out the benefit to the industry of lower fuel prices.
The International Air Transport Association (IATA) left its 2012 global airline profit forecast unchanged at USD$3 billion, masking a widening gap between regions as only North and South America saw their profit outlook improve.
The Geneva-based grouping of around 240 airlines regularly issues forecasts for an industry whose activities are seen as a barometer of indicators such as business confidence and trade.
Director General Tony Tyler told IATA’s annual meeting in Beijing that business was improving for US carriers, many of whom have been keeping a tight lid on capacity.
“The rest of the world is seeing reduced profitability. For European carriers, the business environment is deteriorating rapidly resulting in sizeable losses,” Tyler said.
IATA almost doubled its forecast for European airline industry losses in 2012 to USD$1.1 billion, from its previous forecast of a USD$600 million loss released in March.
On the other hand, it boosted its forecast for North American industry profits, to USD$1.4 billion from a previous estimate of USD$0.9 billion.
“While the forecast is built on the market’s expectation that the sovereign debt crisis in the eurozone will intensify, the risk of more severe economic weakness in the event of a broader eurozone banking crisis could easily wipe out industry profits,” IATA said in a statement.
On the positive side for airlines, traffic has been stronger than expected and the cost of fuel has fallen, while cargo traffic shows signs of bottoming out from a two-year slump.
In the United States, planes are flying virtually full, which although uncomfortable for passengers has pushed up fares.
The eurozone, however, stands in the way of wider growth, Tyler said.
Airline industry profits have roughly halved for two years in a row after peaking at USD$15.8 billion in 2010. Last year they stood at USD$7.9 billion, according to IATA.
The forecast equates to a profit margin of 0.5 percent, a level the industry warns could easily evaporate in the event of a new upset.