By Claire Ferris-Lay
Worsening conditions in Europe likely to take toll on airlines' balance sheets, says trade body
Middle Eastern airlines will post combined profits of $400m for 2011, 50 percent less than predicted earlier, as high fuel costs squeeze profit margins on price sensitive long-haul routes, the International Air Transport Association said.
Regional carriers next year will see profits of $300m, less than half the previous forecast of $700m, as the long-haul market conditions in Europe deteriorate, IATA said in its revised outlook for the industry.
“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the euro zone sovereign debt crisis. Such an outcome could lead to losses of over $8bn - the largest since the 2008 financial crisis,” Tony Tyler, IATA’s director general and CEO.
Globally the aviation industry is forecast to post profits of $3.5bn for 2012, down from earlier estimates of $4.9bn.
But Europe’s failure to stem its crisis and a potential escalation to a banking crisis would result in significant implications and losses of up to $8.3bn, the industry body warned.
Europe would feel the deepest losses estimated at $4.4bn, followed by North America at $1.8bn and Asia Pacific at $1.1bn. The Middle East and Latin America would both be expected to post $400m losses.
“This admittedly worst-case – but by no means unimaginable – scenario should serve as a wake-up call to governments around the world. In a good year, the airline industry does not cover its cost of capital, much less in a bad one,” Tyler said in a statement.
“But in a bad year, aviation’s ability to deliver connectivity and keep the heart of the global economy pumping becomes even more vital to initiating a recovery. Government policies need to recognise aviation’s vital contribution to the health of the economy,” he added.
Dubai’s flag carrier Emirates Airline in November posted a 76 percent slump in first half net profit to AED827m ($225m) as rising fuel costs and regional unrest squeezed margins. The largest international carrier saw net profit fall to AED827m from AED3.39bn in the year-earlier period.
“Emirates remains focused on its long-term strategy despite global instability [and] ever-climbing fuel prices, which resulted in Emirates paying $1bn more in fuel costs over the same period last year and fluctuating exchange rates,” said chairman Sheikh Ahmed bin Saeed Al-Maktoum. “The global challenges of the past six months have again put Emirates to the test.”
Abu Dhabi's Etihad Airways in July said reported a 28 percent rise in revenue to $1.72bn for the first half of 2011, putting it on target to generate its first net profit in 2012.