The International Air Transport Association (IATA) has a pessimistic outlook for 2011 with profit forecasts in 2011 downgraded due to skyrocketing fuel prices, natural disasters and political instability.
The IATA, which represents over 90 percent of international air carriers, is made up of around 230 of the world’s airlines. The organization forecasted in March that the global airline industry would post a surplus of $8.6 billion in 2011. However, recovery of the economy seemed to be sputtering in several major markets, and the IATA cut its industry-wide forecast to $4 billion in profits.
The air travel market was much more robust last year, posting an industry-wide profit of $16 billion. This year, the estimated drop in revenue will be more than 50 percent from the year before due to the knockout year the industry experienced in 2010.
Several key factors are affecting the aviation industry, with Japan’s colossal damage from tsunami natural disaster and nuclear threat, plus the turmoil in Middle East resulting in soaring oil prices. Travel to and from Japan is expected to remain slow all year.
The IATA originally estimated the profits based on an average oil price of $96 per barrel for Brent crude, according to calculations by the BBC. An increase in $1 per barrel could lead to a dramatic increase of $1.6 billion in costs, according to Giovanni Bisignani, IATA’s director and chief executive officer. According to IATA calculations, fuel costs constitute 30 percent of any given airline’s expenditure.
"We are still vulnerable to shocks and oil continues to trade at $US110 per barrel," said IATA director-general and chief executive Giovanni Bisignani at a press conference in Singapore on June 2. "In March, we revised our 2011 outlook to a global profit of $US8.6 billion. Since then, much has happened to make us less optimistic.”
"Japan represents 10% of the total industry revenues—that will impact strongly," said Bisignani in an interview with the BBC. The IATA is currently convening n Singapore for its annual general meeting.
However, economic data and business confidence appear to be on an upward trend and global travel demand could increase around three to four percent, according to Bisignani.
But the IATA estimates that Asia overall, especially in the low-cost segment of the market, will be a positive in an otherwise negative market environment. According to a CNBC report, Thai Airways is in the process of partnering with Tiger Airways to launch a regional low-cost carrier in the South Asia region, focusing on regional travel.
While Asia is expected to be the fastest growing region, Bisignani estimates that India's airline industry will lead the pack with 20 to 25 percent growth, followed by China.
This year’s meeting, the 67th annual meeting for the international industry trade group of airlines, marks the last year of Bisignani’s tenure as CEO.
He will be retiring and be replaced by Tony Tyler, the current CEO of Cathay Pacific to take over as the director general and CEO.
