Airline Industry Group Predicts Tough Year

The group, the International Air Transport Association, said airlines were finishing 2011 in a weakened position, as sluggish economic growth in many countries sapped demand for air cargo and high fuel costs continued to eat into profits. Still, the group, which represents most global airlines, said it would maintain its forecast for combined profits of $6.9 billion in 2011.

“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 euro zone sovereign debt crisis,” Tony Tyler, the association’s director general and chief executive, said in a statement.

Using data from a recent forecast by the Organization for Economic Cooperation and Development, the association said it had calculated that a full-blown European financial crisis could cut world gross domestic product growth roughly in half next year, to 0.8 percent. That would have “the potential to cause global industry losses of $8.3 billion,” the group said. It would be the worst performance for the industry since the 2008 financial crisis.

Historically, the association said, global G.D.P. growth rates of less than 2 percent have resulted in net losses for the airline industry.

“In this scenario, airlines would see growth in passenger demand grind to a halt and a 4.7 percent contraction in cargo markets,” it said. “Both passenger and cargo yields would fall by 1.5 percent.”

European airlines would be hardest hit, accounting for more than half of the total estimated loss, the association said.

North American airlines would be expected to lose $1.8 billion in 2012, while losses in Asia could reach $1.1 billion. Middle Eastern and Latin American airlines would each be predicted to lose $400 million, while African airlines would lose $200 million.

“This admittedly worst-case — but by no means unimaginable — scenario should serve as a wake-up call to governments around the world,” Mr. Tyler said.

Even if European leaders avert a renewed financial crisis, Europe probably would have at least a brief recession, the group said. In that case, the group forecast that profits would shrink 50 percent in 2012 to $3.5 billion.

Despite rapid growth in passenger traffic this year, European airlines are in a challenging position heading into any slowdown.

Competition between low-cost and traditional airlines is intensifying and squeezing already narrow profit margins. Europe’s airlines are expected to generate a collective profit of just $1 billion in 2011, down from a previously forecast $1.4 billion.

In the best case, those figures probably will slip into losses of $600 million in 2012, the association said, adding that declining demand probably would be worsened by expected increases in taxes charged to passengers. If the euro collapses, Europe’s airlines would be expected to lose $4.4 billion.

British Airways on Tuesday blamed an increase in Britain’s airport departure tax for its decision to cut back a planned 2012 expansion to its schedule that would have involved the addition of 800 workers.

If a full-blown crisis is avoided in Europe, global passenger demand would be expected to grow 4 percent next year, slightly below the long-term annual average of 5 percent, the association said.

North American airlines, which are expected to have profits of about $2 billion this year, would probably generate profits of $1.7 billion in 2012.

The Asia-Pacific region, which has been spared the brunt of the global slowdown, is expected to earn $3.3 billion in 2011, although that probably would decline to $2.1 billion next year under the best projection.

This article has been revised to reflect the following correction:

Correction: December 7, 2011

An earlier version of this article said that the O.E.C.D. had recently forecast that a full-blown European financial crisis would cut global gross domestic product growth to 0.8 percent in 2012. That figure was actually a projection made by the I.A.T.A., based on O.E.C.D. data and its own calculations.

Article source: http://www.nytimes.com/2011/12/08/business/global/airline-industry-group-sees-tough-year-ahead.html?partner=rss&emc=rss