European airlines could go out of business, warns IATA economist Brian Pearce
With the industry predicting that European carriers will lose £710m between them this year, chief economist of IATA thinks there could be some casualties. There have already been some casualties, like Spanair and Malev, and other the Hungarian national carrier, and weaker flag carriers could be in danger. Due to the Euro crisis IATA forecast for the year has almost doubled the amount it expects European airlines to lose this year, from £385 million at the last forecast. Last year the same airlines were able to make a combined net profit of £321m, and 2011 was the 2nd successive year in which they had made money. However, aviation is maintaining its profitability in other parts of the world and expecting to make a profit of £1.9bn – but less than half the £5.1bn they made in 2011.
European airlines could go out of business because of the continent’s economic weakness, the aviation industry’s leading economist has warned.
11 Jun 2012
Big Downside Risks on Weak Profitability-European Losses Deepen ]
With the industry predicting that European carriers will lose £710m between them this year, Brian Pearce voiced fears that there could be some casualties.
Mr Pearce, chief economist of the International Air Transport Association, was pessimistic about the industry’s prospects in Europe.
“I think there is a serious risk to the financial viability of some airlines,” he said. “To an extent it depends on the economic outlook we see in Europe. We have already seen some airlines go out of business and there is a clear possibility it will continue.”
Casualties have included Spanair and Malev, the Hungarian national carrier.
Mr Pearce declined to be drawn on who else was at risk, although it is understood that weaker flag carriers could be in danger.
The extent of damage being wrought by the European banking crisis was demonstrated by the latest IATA forecasts, which were unveiled at the industry’s global summit in Beijing.
IATA, which had previously predicted European carriers would lose £385m, has nearly doubled the losses it expects this year.
Last year the same airlines were able to make a combined net profit of £321m. It was the second successive year in which they had made money,
But the latest forecast reflects growing pessimism over Europe’s prospects within the industry at a time when aviation is maintaining its profitability in other parts of the world.
“For European carriers, the business environment is deteriorating rapidly, resulting in sizeable losses,” said Tony Tyler, IATA’s director general.
“The biggest and most immediate risk, however, is the crisis in the eurozone. If it evolves into a banking crisis, we could face a continent-wide recession – dragging the rest of the world and our profits down.”
However, thanks to the strength of aviation outside Europe, airlines across the world are on track to make a profit of £1.9bn this year, which is less than half the £5.1bn they made in 2011.
North America appears to be on course for a better year, with airlines forecast to make a combined profit of £900m in 2012, a modest increase on the £840m of 2011.
Elsewhere, carriers in the Asia-Pacific region are predicted to make £1.3bn in 2012, less than half the £3.15bn they earned last year.
Airlines have been helped by a weakening of the oil price, which, according to the industry’s latest calculations, accounts for a third of the industry’s running costs.
But Mr Tyler warned that the industry was under threat from punitive taxes, such as Air Passenger Duty in Britain, along with rising airport and air navigation charges.
One of the many comments says:
And yet BA traffic up, we hear, and its parent group IAG is going on a spending spree to update the BA and Iberia fleets.
It would be nice if all the experts and commentators could spend some time together and appraise themselves of all the facts and get a consistent account out.
and another says:
Most of Europe is in economic decline, so the European market in air travel will shrink leading to a reorganisation of the industry there.
The logic is simple.
IATA Industry Outlook for June 2012
and Financial Forecast for June 2012
IATA says European demand growth is expected to slow to 2.3%, which is significantly down on the 6.7% expansion of 2011.
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The IATA press release says “European losses now expected to be $1.1 billion – about £ 0.7 billion – (nearly double the previously forecast $600 million loss).”