Africa expected to lose $100m as IATA downgrades 2012 airline outlook on rising oil prices

The International Air Transport Association (IATA) on March 20, 2012 announced a downgrade to its industry outlook for 2012 primarily due to rising oil prices.

IATA says it expects airlines to turn a global profit of $3 billion in 2012 for a 0.5% margin. “This $500 million downgrade from the December forecast is primarily driven by a rise in the expected average price of oil to $115 per barrel, up from the previously forecast $99,” the association said in a statement.

African carriers are still expected to see losses of $100 million, unchanged from the previous forecast, it observed as passenger and freight load factors are “very low on average for airlines in this region which will make it difficult to recover the rise in fuel costs.”

“2012 continues to be a challenging year for airlines. The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk—rising oil prices. Already the damage is being felt with a downgrade in industry profits to $3.0 billion,’’ said Tony Tyler, IATA’s Director General and CEO.

According to IATA, airline performance is closely tied to global GDP growth noting that historically, when GDP growth drops below 2.0%, the global airline industry returns a collective loss.

“With GDP growth projections now at 2.0% and an anemic margin of 0.5%, it will not take much of a shock to push the industry into the red for 2012,” said Tyler.

The association has therefore listed several factors that can prevent a more significant downgrade. The body listed the avoidance of a significant worsening of the Eurozone crisis; improvement in the US economy; cargo market stabilization and slower than expected capacity expansion.

IATA said it has revised upwards its estimated profits for 2011 to $7.9 billion from the previously forecast $6.9 billion. This was primarily owing to the much better than expected performance of Chinese carriers, it added.

By Ekow Quandzie

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