IATA downgrades air cargo growth forecast
The International Air Transport Association (IATA) has reduced its air cargo growth forecast by 0.6% for 2011 due to higher fuel costs. Previously, the Association predicted that cargo demand would increase by 6.1%, which has now been reduced to 5.5%.
The decision was confirmed as the IATA reduced its airline industry profit forecast to $4bn for 2011.
IATA said natural disasters, political unrest, and rising oil prices have led to a downgrade in expectations.
Overall, an airline industry profit figure of $4bn would represent a 54% fall compared with the $8.6bn profit forecast in March.
Furthermore, the new figure represents a 78% drop compared with the $18bn net profit (revised from $16bn) recorded in 2010, the IATA said.
Commenting on the news, Giovanni Bisignani, IATA’s director general and CEO, said: “Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4bn this year.
“That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance. The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7% margin, there is little buffer left against further shocks.”
A statement said the cost of fuel “is the main cause of reduced profitability”, citing that the average oil price for 2011 is now expected to be $110 per barrel (Brent), a 15% increase over the previous forecast of $96 per barrel. For each dollar increase in the average annual oil price, airlines face an additional $1.6bn in costs. With estimates that 50% of the industry’s fuel requirement is hedged at 2010 price levels, the industry 2011 fuel bill will rise by $10bn to $176bn. Fuel is now estimated to comprise 30% of airline costs—more than double the 13% of 2001.
“We have built enormous efficiencies over the last decade. In 2001, we needed oil below $25 per barrel to be profitable. Today, we are looking at a small profit with oil at $110 per barrel” said Bisignani.
Additionally, overall capacity (combined passenger and cargo) is “expected to expand 5.8%, which is above the 4.7% anticipated increase in demand”.
However, it added that “robust” economic conditions have given airlines some scope to partially recover higher fuel prices. This is reflected in an increased yield growth forecast of 4% for cargo (up from the previously forecast 1.9%).
In its regional focus, the IATA said Asia-Pacific carriers are expected to earn $2.1bn—the most profitable of all regions, whilst North American carriers will see the $4.1bn profit of 2010 fall to $1.2bn. European carriers will deliver a $500m profit, down from $1.9bn in 2010. Middle East carriers will record a profit of $100m, down from $900m in 2010.
Latin American carriers will be the only region to deliver a third consecutive year of profits, the IATA said, but a $100m profit is down considerably on the $900m profit of 2010. African carriers are forecast to be the only region to post a loss, $100m, in 2011.