July 15, 2024

Global Airline Group Cuts 2011 Profit Forecast

SINGAPORE — Global airlines cut their 2011 profit forecast Monday by more than half, to $4 billion, as high oil prices and turmoil in Japan, North Africa and the Middle East weigh on the industry’s recovery.

The International Air Transport Association, which represents most global carriers, also warned of a looming trade war if Europe moves ahead with plans to force airlines to join an emissions trading program next year.

Under the Emissions Trading Scheme, the European Union would force carriers to buy permits for each ton of carbon dioxide they emit above a certain cap. The Union has offered to exempt airlines based in countries that can prove they are taking equivalent steps to cut emissions.

Representatives from developing countries criticized the proposed rules as unfair.

“We do not have the same level of sophistication or maturity in trading of carbon credits, and therefore any such new policy or levy on Indian carriers flying to Europe would be unfair,” said Vijay Mallya, chairman of Kingfisher Airlines of India. “Now it’s a government-to-government matter, not an airline-specific matter.”

The China Air Transport Association contended that the program would cost Chinese airlines more than $100 million in the first year and more than triple that by 2020.

“I believe we have to take legal action,” said Wei Zhenzhong, secretary general of the group, adding that Air China was preparing a legal challenge. The U.S. industry group, the Air Transport Association of America, is also challenging the plan in E.U. courts.

Airlines have said that the program, designed to tackle growing emissions from the aviation industry, would only increase costs and add to pressures already caused by the sluggish global recovery.

“The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel,” the international association’s director general, Giovanni Bisignani, said at the group’s annual meeting in Singapore.

“But with a dismal 0.7 percent margin, there is little buffer left against further shocks,” he said.

The association’s $4 billion profit forecast compares with the $8.6 billion forecast March 2, just before an earthquake and tsunami in Japan led to a crisis at a nuclear power station. Since then, the uprisings in the Middle East and North African have spread, and oil prices have reached well above $100 a barrel.

The new forecast would also mark a drop of more than three-quarters from the industry’s estimated 2010 profit, which was raised to $18 billion from $16 billion.

Economists say the industry’s outlook is a guide to the strength of cyclical recovery in developed markets and growth in emerging economies, which rely heavily on air transportation.

Airlines rebounded faster than expected from recession last year, helped by higher traffic and a drive to keep a lid on spare capacity. But a far too rapid expansion in capacity, a series of external shocks and higher oil prices have hit the industry hard this year.

The International Air Transport Association is forecasting an average oil price in 2011 of $110 per barrel, up nearly 15 percent from $96 last year, adding to the incentive for airlines to raise fares or fuel surcharges to cover the rising cost of doing business.

Qantas Airways was “looking at more increases going forward,” its chief executive, Alan Joyce, said in an interview. “Hedging just gives you time.”

The international group also warned that capacity was set to expand 5.8 percent in 2011, outstripping a 4.7 percent increase in demand.

Mr. Bisignani has said that a lack of discipline could dent the industry’s recovery as airlines jostle for market share.

Article source: http://feeds.nytimes.com/click.phdo?i=a2dbad543036b9e4e23e3c3ab25412a9

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