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Wed 2 Feb 2011 03:52 PM

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International air-passenger traffic slowed in December

Oil prices at current levels will increase airline costs by more than this year’s projected earnings, IATA says

International air-passenger traffic slowed in December
AIR TRAFFIC: Air-traffic growth slowed in December as cold weather in Europe and North America disrupted flights (Getty Images)
International air-passenger traffic slowed in December

Oil prices at current levels will
increase airline costs by more than this year’s projected earnings, threatening
the industry’s return to profitability, the International Air Transport
Association said.

IATA on December 14 forecast carriers
would log net income of $9.1bn in 2011 based on oil at $84 a barrel. With
crude trading $7 higher than that and every $1 increase boosting the fuel bill
by $1.6bn, costs could increase by $11bn.

“The story this month is the sharp
rise in oil prices,” IATA Chief Executive Officer Giovanni Bisignani said in a
statement, adding that a sustained increase “could spoil the party” even as
people start to travel again after the recession, eroding a 2.7 percent profit
margin he described as “pathetic.”

Airlines posted earnings estimated
at $15.1bn last year as international passenger traffic jumped 8.2 percent,
outstripping a 4.4 percent rise in capacity so that planes flew more than 78
percent full, IATA said. Freight demand increased by almost 21 percent as
economic growth picked up.

Crude oil futures were trading as
high as $91.32 on the New York Mercantile Exchange on Wednesday. Buying
kerosene accounts for 27 percent of an airline’s operating costs, according to
IATA.

Airlines seek to guard against
rising fuel expenses by hedging at a set price on part of their annual
requirement. Network carriers such as Air France-KLM Group, the biggest in
Europe, also pass costs from unhedged fuel to customers through a system of
predetermined surcharges, though that can deter travel if ticket prices
increase too much.

The air-travel rebound slowed in
December as snowfalls in Europe and North America disrupted flights. Traffic
grew 4.9 percent, down from 8.2 percent the previous month, with the wintry
weather cutting demand by 1 percentage point, IATA said.

The December gain was led by a 14
percent increase in the Middle East and a 12 percent jump in Africa, it said.
Passenger volumes are now 4 percent higher than the pre-recession levels of
early 2008. While freight is 1 percent higher, cargo tonnage has fallen 5
percent since a post-slump restocking boom in 2010.

“The challenge is to turn the demand
for mobility into sustainable profits,” Bisignani said.