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Wed 3 Aug 2011 06:11 PM

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Global airline earnings fall in Q2 amid oil price rises

International Air Transport Association says net income down almost 66% for 16 key carriers

Global airline earnings fall in Q2 amid oil price rises
airline generic, aeroplane

Airline industry
earnings for the three months through June suffered the first
year-to-year decline in two years as oil prices rose, the International
Air Transport Association said.

Early
figures for 16 carriers showed operating profit shrinking by one-third
and net income tumbling by almost two-thirds, the Montreal- and
Geneva-based industry group said on Wednesday in a report. North America, the
Asia-Pacific region and Latin America are all showing declines.

European
earnings advanced only because traffic disruptions caused by a
volcanic-ash cloud crimped profit last year.

“The
whole airline sector is under the cosh right now,” Joe Gill, an analyst
at Bloxham Securities in Dublin, said in an interview. “The airlines
are massive consumers of fuel, and they will ultimately respond by
cutting capacity.’

Air
France-KLM Group, Europe’s biggest carrier, tumbled the most in almost
18 months in Paris trading on July 28 after posting a second-quarter
operating loss of 145 million euros ($207 million), counter to analysts’
estimates that it would report a profit.

Earnings at Deutsche Lufthansa
and Singapore Airlines also failed to meet analysts’
predictions.

Passenger
traffic is still rising at a 4 percent to 5 percent annual pace, IATA
said. At the same time, jet-fuel prices headed above $130 a barrel in
July, while airline capacity increases are outpacing demand, resulting
in June load factors, or seat-occupancy levels, that were 1 percentage
point below 2010’s high, the group said.

A
deterioration in consumer confidence and the economic outlook in the
past month will put third-quarter earnings under further pressure, with a
possible slowdown in business travel, which has so far spurred traffic
in 2011, posing a ‘‘worry,” IATA said.

The
31-member Bloomberg World Airline Index has slumped 4.8 percent this
week, falling to the lowest in more than a year. Declines in 2011 have
been led by Thai Airways International Pcl, Air France-KLM and Delta Air
Lines.

Airline share prices have fallen by about 15 percent this
year because of economic concerns, IATA said.

A
slump in demand may prove to be a catalyst for oil prices to fall,
giving stronger airlines an opportunity to buy fuel at lower costs,
Bloxham Securities’ Gill said. About 30 percent of an airline’s costs
come from fuel.

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