IATA expects industry profits of $4 billion in 2011

Global airlines cut their 2011 profit forecast by more than half on Monday as high oil prices and turmoil in Japan, North Africa and the Middle East weigh on the industry's recovery. The International Air Transport Association (IATA), which represents most global carriers, said it expected industry profits of $4 billion in 2011, down from a previous forecast of $8.6 billion. This would down more than three-quarters from the industry's estimated 2010 profit, which was raised to $18 billion from $16 billion.

"The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel," the IATA's director general, Giovanni Bisignani, told the group's annual general meeting in Singapore. "But with a dismal 0.7% margin, there is little buffer left against further shocks," he said.

Economists say the industry's outlook is a guide to the strength of cyclical recovery in developed markets and growth in emerging economies, which rely heavily on air transport. Airlines rebounded faster than expected from recession last year, helped by higher traffic and a drive to keep a lid on spare capacity. But a series of external shocks and higher oil prices have hit the industry hard this year.                                           

Airlines had been bracing for lower 2011 forecasts at this week's major conference as fears grow over the global economy. IATA is forecasting a $110 per barrel average oil price in 2011, up 15% from $96 last year.                                           

It issued a warning that capacity was set to expand 5.8% in 2011, outstripping a 4.7% increase in demand. The 1.1% point gap is sharply higher than 0.3% previously forecast. Bisignani said a lack of discipline could dent the industry's recovery as airlines jostle for market share.                                                                                   

The association also warned of a looming trade war if Europe moves ahead with plans to force airlines to join a planned Emissions Trading Scheme (ETS), which would force carriers to buy permits for each tonne of carbon dioxide they emit above a certain cap.                                           

The plan is meant to tackle growing emissions from the $500 billion aviation industry, which is responsible for about 2% of mankind's greenhouse gas pollution. Airlines say it will only increase costs and add to pressures caused by a faltering global economy. Governments and airlines have been piling on pressure, some describing the forced inclusion of global airlines as illegal.                                          

The EU has offered to exempt airlines of countries that can prove they are taking equivalent steps to cut emissions. Representatives from developing countries slammed the proposed rules and said they were unfair.                                          

"Indian airlines which fly overseas, such as Kingfisher Airlines, have already made their views known to the minister of civil aviation," said Vijay Mallya, chairman of Kingfisher Airlines.                                           

"We do not have the same level of sophistication or maturity in trading of carbon credits and therefore any such new policy or levy on Indian carriers flying to Europe would be unfair. Now it's a government-to-government matter, not an airline specific matter," he said. Singapore's deputy prime minister, Tharman Shanmugaratnam, told IATA delegates that a global approach to emission control was needed.                                          

"In addressing climate change, we should harmonise measures at an international level so as to ensure a level playing field for all, as well as minimise multiple cost layers from unilateral localised emissions trading schemes and environmental taxes," he said.