Profit warning for airlines despite oil price fall

Posted Monday, 2 July, 2012 – 11:45 by Rob Gill

The profits being made by the global aviation industry remain “razor thin” despite a drop in oil prices in recent months.

Global traffic rose by 4.5 per cent in May compared to the same month in 2011, according to figures from IATA. But this was a rise of only 0.1 per cent on the passenger numbers seen in April despite overall capacity increasing by 0.6 per cent month-on-month.

IATA blamed the slowdown on the continuing economic problems within the eurozone countries. It said that traffic growth for European carriers had “basically stopped at the end of 2011”.

Tony Tyler, IATA’s CEO, said: “The airline industry is fragile. Relief in oil prices provides some good news. Unfortunately, the softness in oil markets comes on the back of fears of deterioration in the European economy.

“Business and consumer confidence are falling. And we are seeing the first signs of that in slowing demand and softer load factors. This does not bode well for industry profitability.”

IATA is predicting that the airline industry will make a collective profit of $3 billion in 2012 on revenue of $631 billion – which works out at what Tyler calls a “razor-thin” margin of 0.5 per cent.

The report said that European-based airlines saw passenger growth of 4.1 per cent in May compared to May 2011 but this is a slowdown on the growth of 5.7 per cent seen in April. Although overall load factor for Europe’s carriers was 78.5 per cent – 1.5 percentage points higher than the global average.

“Since the beginning of 2012, the growth trend has been basically flat, in line with the economic pessimism throughout the continent,” added the report.

Tyler used the release of the figures to again press the world’s governments to stop taxing the industry so severely.

“The G-20 leaders recognised the critical role of aviation which is the backbone of travel and tourism that is a vehicle for job creation, economic growth and development,” he said.

“Now we need governments to move from recognition to action with tax policies that don’t kill growth, regulation that enables growth and infrastructure to accommodate growth.”