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Friday 04th of March 2011
March 2, 2011    

Airline profits will be hit by higher oil costs

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by Kay Murchie
Airline profits will be hit by higher oil costs

The International Air Transport Association (IATA) has again revised its forecasts for the airline industry.

However, the forecasts have been revised on the back of surging oil prices, according to the industry body.

IATA said global airlines will make a profit of $8.6 billion (£5.3 billion) for 2011 - down from the $9.1 billion it estimated in December.

The revised forecast comes as Brent crude hit $119 a barrel - a two-and-a half-year high.

There are fears about the impact on oil supplies as unrest in Libya and the Middle East continues.

Fears have also been raised for the world’s largest economy. Federal Reserve chairman Ben Bernanke recently said a prolonged rise in oil prices would pose a danger to economic growth in the US.

However, fears will also be raised after many airlines went bust when fuel prices rose in 2008. Oil prices reached a peak of $147 a barrel in the summer of that year, forcing many companies into liquidation.

Meanwhile, IATA said overall passenger numbers are expected to grow by 5.6% in 2011, while cargo transport volumes are set to increase by more than 6%.

Giovanni Bisignani, IATA’s director general, said: “There is very little buffer for the industry to keep its balance as it absorbs shocks.

“Today oil is the biggest risk. If its rise stalls global economic expansion, the outlook will deteriorate very quickly.”

Finally, airlines in Europe are expected to suffer the most as demand will weaken on the back of slower economic growth and ongoing fears over the debt crisis.

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