The International Air Transport Association (IATA) on Tuesday cut its profit forecast for the airline industry for the second time in four months due to rising oil prices and deepening global economic gloom.
“We still expect a positive bottom line of USD$4.5 billion, but it’s turning out to be a very tough year,” IATA Director General Giovanni Bisignani said in a statement.
High fuel costs and economic disquiet from the credit crunch have softened demand and hurt “an industry that is constantly on the verge of intensive care”, Bisignani said.
In December, IATA lowered its 2008 profit forecast to USD$5 billion. The Geneva-based industry body had initially predicted USD$7.8 billion profits for this year.
The latest outlook was based on an average annual price of USD$86 per barrel of Brent crude oil, which traded above USD$100/bbl on London markets on Tuesday.
At USD$86/bbl fuel accounts for 32 percent of airlines’ operating costs and a total bill of USD$156 billion for the industry, according to IATA.
“With fuel costs rising, the US market in recession and competition intensifying, the only way to limit the damage to profitability will be to take out capacity or squeeze out further efficiency gains,” it said.
The possibility of further oil price increases and other economic woes meant that risks to the USD$4.5 billion forecast were “clearly on the downside”, IATA said.