Fuel costs force profit downgrade

Fuel costs force profit downgrade
By admin


Global airline losses could hit more than US$5 billion this year if, as feared, the cost of fuel rises to US$150 per barrel, the International Air Transport Association (IATA) has warned.

The grim scenario emerged as IATA downgraded its profit forecast in 2012 from $3.5bn to $3bn on the back of rising oil prices.
Any further significant increase “will almost certainly turn weak profits into losses”, IATA director general and chief executive Tony Tyler said.
He warned that a deterioration of the crisis in Iran could see oil prices spike at $150 a barrel.
IATA said the profit downgrade would have been worse had the Eurozone crisis worsened and the US economy not picked up. Slower than expected capacity rises and stability in the cargo market also prevented a sharper downturn.
“2012 continues to be a challenging year for airlines,” Tyler said. “The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk, rising oil prices. Already the damage is being felt with a downgrade in industry profits of $3b.” 
Referring to historical data which show airlines lose money when GDP growth falls below 2%, Tyler added: “With GDP growth projections now at 2% and an anaemic margin of 0.5%, it won’t take much of a shock to push the industry into the red for 2012.”
Asia Pacific bucked the trend however with profits expected to hit $2.3bn, a rise of $200 million on December’s estimate.
Passenger demand is forecast to grow 4.2%.

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