Plunging profits warning for world airlines

The International Air Transport Association (IATA) forecasts that airlines will make profits of £2.4bn in 2011, a 78 per cent drop from the £11bn in 2010.

This represents a significant deterioration from its forecast in March when it thought profits would fall by almost a half, to £5.2bn.

The downgrade to the profits forecast has been caused mainly by higher oil prices, which have risen 15 per cent, to 110 US dollars a barrel since March, driven by the crisis in the Middle East.

Higher air fares are putting off value-sensitive leisure customers, with passenger numbers falling by between three per cent and four per cent over the past five months, making it harder for airlines to increase revenues.

As a result, passenger demand is now expected to grow 4.4 per cent in 2011, whereas it had been expected to grow by 5.6 per cent.

Cargo demand is expected to increase by 5.5 per cent, down from the previous prediction of 6.1 per cent, as the cost of transporting goods by plane rises.

The Japanese earthquake and tsunami, which triggered the Fukushima nuclear disaster, will also dent global passenger numbers by about one per cent, it said.

Giovanni Bisignani, IATA’s director general and chief executive, 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 (£2.4bn) 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 per cent margin, there is little buffer left against further shocks,” he said.

In Europe, airlines are being hit by higher taxes.