Airline profits set to fall sharply next year—IATA

Profits by airlines around the world are set to be far lower than previously forecast next year, the International Air Transport Association (IATA) said on Wednesday.

IATA, based in Geneva, said in a statement that it still estimated that airlines would make a total profit of $6.9 billion (5.1 billion euros) this year.

But next year this would fall to $3.5 billion from $4.9 billion expected earlier, and this could turn into a loss of $8 billion if the eurozone crisis spread.

“The eurozone crisis puts severe downside risk on the 2012 outlook as illustrated by the recently published OECD economic outlook,” IATA said.

“In a worst-case scenario, should the eurozone crisis evolve into a full-blown banking crises and European recession, IATA estimates that the global aviation industry could suffer losses exceeding $8 billion in 2012.”

IATA chief Tony Tyler said the biggest threat to airline profits would be any failure by eurozone governments to resolve the debt crisis.

“Such an outcome could lead to losses of over $8 billion, the largest since the 2008 financial crisis,” said Tony Tyler, IATA’s director general and CEO.”

The global forecast for 2011, however, remained unchanged at $6.9 billion, he added.

“But regional differences have widened, reflecting the very different economic environments facing airlines in different parts of the world.

“And the overall margin of 1.2 percent tells you just how difficult the battle for profitability in this business is,” said Tyler.

In a worldwide review of the airline industry, IATA said that European companies faced the greatest challenge.

“Higher passenger taxes and weak home market economies have limited profitability in Europe,” said the statement.

European airlines were forecast to make a collective profit of just $1 billion, down from the previously forecast $1.4 billion,” it added.

“Low profitability has been despite European airlines being one of the fastest-growing regions in terms of traffic this year,” it said. “Yields have suffered and the base of strong demand grows more fragile as the sovereign debt crisis escalates.”