European Financial Crisis Will Drag Down Airline Profits This Year, Says IATA

 - June 18, 2012, 12:45 PM
IATA’s annual general meeting in Beijing was given a warning of further reductions in airline profit margins this year. (Photo: IATA)

Europe’s mounting financial crisis is dragging down worldwide airline profitability this year, according to a revised industry forecast from the International Air Transport Association (IATA). Overall, the industry’s 2012 collective profits of around $3 billion are expected to be about the same as those IATA included in its previous March 2012 forecast, but the group’s June 11 report, presented at its annual general meeting in Beijing, warns that losses at European airlines are now set to double to $1.1 billion as anticipated losses in the banking sector and threats to the euro currency zone damage prospects for economic growth.

IATA flagged up concerns about mounting evidence of economic slowdown in China, which has been a key generator of air transport growth, offsetting weakness in other world markets.

IATA says that 2012 will mark a second successive year of declining airline profits, with worldwide average margins reduced to a mere 0.5 percent. In 2010 the industry’s profits peaked at $15.8 billion with a net margin of 2.9 percent, before dipping in 2011 to $7.9 billion for a 1.3 percent net profit.

But behind the headline concerns, there are some more encouraging indicators from the IATA report. For example, falling oil prices should alleviate a trend of rising costs for carriers; passenger traffic is still growing in some regions; and a decline in the air-cargo market appears to have been halted. IATA now sees improved prospects for North American and Latin American airlines, but has downgraded its projections for Europe, the Middle East and Asia, while leaving the African forecast unchanged. “For European carriers, the business environment is deteriorating rapidly, resulting in sizable losses,” said IATA director general Tony Tyler.

Addressing the IATA general meeting, Willie Walsh, chief executive of International Airlines Group [British Airways and Iberia], slammed the British government for its refusal to expand airport capacity, its imposition of high passenger duties and visa requirements so stringent as to deter foreign visitors to the UK. Walsh said that the Conservative-led administration of Prime Minister David Cameron “tops the list” of governments with policies that undermine air transport. “I think it’s fascinating, the prime minister traveling the world highlighting Rolls-Royce and the great engines that they make and forgetting that most of those engines are on British aircraft. There is no recognition of that,” complained Walsh. “It’s completely disconnected in terms of strategy and we’re suffering seriously as a result.”