07/06/2011
By Steven Birch
Rising oil costs are expected to slash airline profits by 78 per cent this year, according to industry experts.
The International Air Transport Association (IATA) has revealed that airlines will make profits of £2.4 billion this year, which is around 20 per cent of the £11 billion they made last year.
This forecast also marks a significant deterioration from its March forecast, which said profits would drop by almost half to £5.2 billion.
Higher oil prices have been highlighted as the major driving force behind the downgrade, which has increased the cost of flying and put off many cash-strapped customers, who have to worry about travel insurance and holiday money as well as flight costs.
Since March the price of oil has climbed by 15 per cent to reach 110 US dollars a barrel, pushed up by the upheaval in the Middle East.
Value-sensitive leisure customers are being put off by these higher fares with passenger numbers dropping by between three and four per cent over the past five months, making it harder for airlines to boost 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 previously in March.
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 1 per cent a spokesman for the IATA said.
And in Europe, airlines are being hit by higher taxes, such as Air Passenger Duty in the UK.
