Airline Industry “Fragile”

The CEO and director general of the International Air Transport Association (IATA) told the group’s annual meeting in Beijing that the industry is “fragile … with serious downside risks.” The IATA has projected that airline profits in 2012 will amount to just 0.5% of revenue, and even that paltry level of profits is threatened by high fuel prices and the crisis in Europe.

The crisis in the Eurozone gets the nod as the greatest threat:

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.

If revenues fail to meet projections by even 1%, the industry’s small gain will turn into a loss. The IATA considers the current Eurozone emissions restrictions to be a serious threat as well:

The extra-territorial EU Emissions Trading Scheme (EU ETS) is not a stepping stone on the way. It’s a polarizing obstacle that is preventing real progress. … Everyone—including Europe—agrees that the only real solution is a global agreement through ICAO at its 2013 Assembly. Such an agreement, however, is impossible under current conditions. Europe seems more committed to implementing its ETS unilaterally than to sincerely negotiating a multilateral agreement. For Europe’s international counterparts it’s like being asked to negotiate with a gun to their head.

As for fuel prices, the IATA anticipates an average crude oil price of $110/barrel in 2012, which will cost the industry $207 billion, or a third of their total costs. Ten years ago fuel costs were less than half that total. And geopolitical risk “could easily push the price higher.”

Asian, US, Latin American, and Middle Eastern airlines are all expected to show a modest profit in 2012, while European carriers’ expected losses have been projected to double to $1.1 billion.

A copy of the remarks are available here.

Paul Ausick