12 Jun 2012

Airline profits predicted to plummet

11:58 am on 12 June 2012

Airline industry group IATA is forecasting global profits to plummet by more than half in 2012 due to high oil prices and the ongoing eurozone crisis.

Association director general Tony Tyler told IATA's annual conference in Beijing that 2012 will be another challenging year and he expects airlines to post profits of just US$3 billion.

That compares with US$7.9 billion in 2011.

Mr Tyler says the eurozone crisis remains the biggest and most immediate risk, and if it evolves into a banking crisis it could drag profits down for airlines around the world.

On the positive side, 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.

Ascend aviation analyst Peter Morris told the BBC that airlines are under pressure to reduce fares as fuel prices fall.

"Despite what people might say about being slow to reduce prices it will actually play its way through because people are desperate for finding ways to keep those cabins full. If the fuel input price goes down, there is a degree to which they're going to pass that on straight away."

Airlines tend to buy their fuel in advance to hedge against rising prices.

Most will already have all the fuel they need for this year, and the cheaper fuel they are buying now is for delivery at the start of next year. That means it could be a several months before the lower costs and lower fares start to feed through.