The International Air Transport Association (IATA) announced revisions to its industry outlook. For 2011, profitability remains weak but unchanged at $6.9bn for a net margin of 1.2 percent. Looking ahead to 2012, IATA downgraded its central forecast for airline profits from $4.9bn to $3.5bn for a net margin of 0.6 percent.

The Eurozone crisis puts severe downside risk on the 2012 outlook as illustrated by the recently published OECD economic outlook. In a worst-case scenario, should the Eurozone crisis evolve into a full-blown banking crises and European recession, IATA estimates that the global aviation industry could suffer losses exceeding $8bn in 2012.

"The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8bn-the largest since the 2008 financial crisis," said Tony Tyler, IATA's director general and CEO.

"The global forecast for 2011 is unchanged at $6.9bn. But regional differences have widened, reflecting the very different economic environments facing airlines in different parts of the world. And the overall margin of 1.2 percent tells you just how difficult the battle for profitability in this business is," said Tyler.

This slightly stronger-than-expected passenger performance is offsetting (1) worse-than-expected cargo performance and (2) somewhat higher-than-anticipated oil prices. At an average oil price of $112 per barrel, the industry's 2011 fuel bill is expected to be $178bn (up $2bn from previous expectations). A downward trend in cargo since mid-year means that cargo likely will finish the year with a 0.5-percent contraction in volumes and flat yields.

Read Full Article