Europe’s sad economy is going to knock fragile aviation industry

Source: dpa German Press Agency
By Andreas Landwehr and Niels C. Sorrells

The aviation industry is in a “fragile” condition, the chief of the International Air Transport Association (IATA) said Monday, and noted the situation could get worse if the European economy deteriorates further.

“The industry’s profitability is balancing on a knife edge,” said Tony Tyler, IATA director general and chief executive, during the group’s general meeting in Beijing.

He said the group still expects a profit of 3 billion dollars this year, unchanged from earlier projections, but that global conditions could quickly erase any potential gains.

“If the bottom line worsens by even the equivalent of just 1 per cent of revenue, our 3-billion-dollar profit very quickly becomes a 3-billion-dollar loss,” he said.

Even the 3-billion-dollar profit was a worrisome sign, said Tyler, noting that such a profit on expected revenues of 631 billion dollars only equalled a 0.5-per-cent margin.

“And that projection comes with some serious downside risks. The high price of oil is among the main reasons for our anaemic global profitability.

“The biggest and most immediate risk, however, is the crisis in the eurozone. If it evolves into a banking crisis, we could face a continent-wide recession dragging the rest of the world and our profits down.”

He warned against taking too much comfort in a current uptick in demand or the moment’s lower fuel prices, noting, in particular, that the low fuel prices were based on expectations of a weakening economy in the future.

“The eurozone crisis is standing in the way of improved profitability and we continue to face the prospect of a net profit margin of just 0.5 per cent.”

He said, however, that there was the possibility of some improvement in the Americas for 2012. But that would not erase expected losses in European, Asian-Pacific and Middle Eastern markets this year.

Airline industry profits peaked at 15.8 billion dollars in 2010, a 2.9-per-cent net profit margin, before receding to 7.9 billion dollars in 2011, a net profit margin of 1.3 per cent.