IATA has more than halved its industry net profits forecast to $4 billion citing higher fuel costs, unrest in the Middle East and Africa and natural disasters in Japan.

The airline body has downgraded its profits expectations for the year from the $8.6 billion it had been forecasting in March. The revised profit forecast figure is less than a quarter of the $18 billion profit (revised upwards from $16 billion) the industry made in 2010.

Key to the slump in profit expectations is higher fuel costs. IATA expects an average price of Brent crude oil of $110 per barrel for 2011, up from its previous forecast in March of $95. IATA now expect the industry 2011 fuel bill to jump $10 billion to $176 billion, comprising 30% of airline costs - more than double its share a decade ago.

"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 $4 billion this year," says IATA director general Giovanni Bisignani. "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."

While IATA has raised its expectations for global GDP growth projections by 0.1 points to 3.2%, it has cut its forecast for demand growth. It now sees passenger growth more than a point lower this year at 4.4%, while projecting cargo growth of 5.5% compared to the 6.1% earlier predicted.

And though it expects improved yields for the year - doubling its previous forecast for passenger and cargo yield growth to 3% and 4% respectively - it notes higher fares impact price-sensitive demand and that airlines not expected to be able to offset higher costs with increased revenues.

IATA also sees demand falling further behind airline capacity growth this year, putting more pressure on load factors. It expects airlines to increase capacity 5.8%, higher than previously forecast, and for a widened gap of 1.1% between capacity and demand growth.

Source: Air Transport Intelligence news