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IATA: Fuel costs threaten airline sector

March 21, 2012

The International Air Transport Association, or IATA, has cut its 2012 forecast for global airline profits to $3 bn with the profit margin coming in at 0.5% of sales (December projection: $3.5 bn, margin of 0.6%; 2011 industry profit: $7.9 bn) due to a sharp rise in oil prices (+12% since the previous guidance).

Brian Pearce, chief economist of the trade group with headquarters in Geneva and Montreal, remains hopeful that oil prices would not spike higher, but the risk was skewed to the upside. “On the good news side, it appears that the worst of the sovereign debt crisis in Europe has been avoided for now,” IATA director general Tony Tyler said, adding there were mitigating factors for airline profits, such as fuller passenger cabins and some signs of optimism among purchasing managers, which should increase freight revenues in the second half of this year. Fuel makes up a third of airline costs, according to IATA.