Current crude oil prices tighten airline revenues

The International Air Transport Association (IATA) has recently met in Beijing, China for its yearly general meeting and airline experts announced that, for 2012, industry profits could reach $3 billion or, 0.5 percent of projected $631 billion total gross revenues.

The airline industry is one of sectors that is hardest hit by high crude oil prices. Apart from fuel prices, the European recession (if it happens) could result to poorer industry outcomes by year-end. The industry is also concerned with current carbon emission disagreements as well as amendments in taxes and regulations.

The association is presently made up of 240-member airlines, which include major airline companies around the world. Tony Tyler, the association’s Executive Director, said that if airline gross revenues slide by just one percent, this could easily translate to a year-end total deficit of around $3 billion. He added that the current Euro-crisis and its possible recession could also drive revenues further down.

European airlines are not expected to post some gains this year. In fact, projections reveal that they might end up with a deficit of $1.1 billion. Middle Eastern and United States airlines are expected to post modest gains, while Asian airlines are predicted to earn somewhere around $2 billion in total region-wide profits.

IATA assumed a $110 crude oil price per barrel when it calculated income and loss projections for the airline industry. On the average, cost of fuel comprises more than 30 percent of an airline’s total cost.  For comparison, fuel costs’ share of the industry’s total cost structure was only around 14 percent in 2002. Compared with last year’s combined profit of $7.9 billion, IATA predicts profits will slide by a hefty 50 percent.

Meanwhile, IATA encouraged governments to pursue a globally acceptable system that would control airline carbon emissions. As of now, there are a growing number of countries who are not happy about Europe’s carbon emission laws and charges. Europe requires airlines to purchase permits for carbon emissions.

The U.S., Russia, China, and India are among those who strongly oppose it, declaring that Europe has crafted emission laws, and has done so one-sidedly.

Discussions about having a global system has already commenced among members of a global aviation group, and Europe stated that it may restructure its current system if there is a mutual agreement already among airline companies.

Peter Hartman, Chairman of IATA, said that his group does not disagree with having a system that controls carbon emission. On the other hand, Tyler said that the airline industry must not be looked upon a subject of exploitation, but a catalyst of economic progress.

By Chris Termeer