The International Air Transport Association (Iata), an association of airlines and travel agents, said on Tuesday that rise in crude will cut down airlines? profit by $500 million in calendar 2012 to $3 billion. Profit margins also will dip to 0.5% from 0.6% reported last year.
?The downgrade is driven primarily by a rise in the expected average price of oil to $115 per barrel, up from $99 per barrel in our previous forecast,? Iata?s director general Tony Tyler said on a conference call with the media from Geneva. ?With the current average crude price approaching $120 a barrel, it will push fuel to 34% of the average operating costs and see the airlines? fuel bill rise to $213 billion.?
Any hike in fuel prices will pinch Indian carriers more as Indian passenger carriers spend 40% of operating costs to buy aviation turbine fuel (ATF). The three listed Indian carriers ? SpiceJet, Kingfisher Airlines and Jet Airways ? have reported a loss of R2,465.75 crore in the fiscal three quarters of 2011-12 as it paid more for fuel and airport usage.
Carriers in Asia Pacific region, however, will fare well and is expected to generate profits of $2.3 billion, Iata said. ?The growth in the region is primarily driven by China and Indian aviation is in the midst of a crisis,? said Tyler.
?A number of commentators have pointed to a scenario where an escalation of the crisis in Iran could see the closure of the Strait of Hormuz, cutting off vital supply links for oil,? Iata said. ?In this scenario oil prices could spike to $150 per barrel for Brent crude by mid-year, for a full year average of $135 per barrel. In such a scenario, the entire aviation industry will plunge to losses of over $ 5 billion.?
?While we have seen some improvements in economic prospects any further significant rise in the fuel price will almost certainly turn weak profits into losses,? said Tyler.
