IATA warns higher fuel costs may ground airlines in 2012 | Business| Economy and finance news from a German perspective | DW | 20.03.2012
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IATA warns higher fuel costs may ground airlines in 2012

Global airline industry group IATA expects profits in the sector to decline by almost two thirds in 2012, with some airlines facing major turbulences or even bankruptcy. More Middle East tension would compound the gloom.

The International Air Transport Association (IATA) reduced its 2012 profit forecast for the airline industry to $3 billion (2.3 billion euros) - a substantial drop from overall profits of $7.9 billion for the sector in 2011.

Soaring fuel prices amid "supply fears" as a result of tensions in the Middle East, were "key threats" to the industry in 2012, IATA warned Tuesday.

As the eurozone debt crisis had now been "taken off the table," IATA said that oil prices, which are expected to be at an average of $115 per barrel in 2012 would "weigh heavily" on industry earnings.

"This will push fuel to 34 percent of average operating costs and see the overall industry fuel bill rise to $213 billion," IATA president Tony Tyler said at the group's annual news conference in Geneva.

But if oil prices were to jump to $150, "we cannot rule out the possibility of some bankruptcies," he added.

Middle East in focus

The airline industry group expects "significant effects everywhere" with all regions standing to "lose", but notably Europe facing the "most losses" from oil price shocks.

Margins in Europe were already "very tight," said IATA, noting that its prediction of losses to the tune of $600 million for the continent's airlines in 2012 may still have to be revised downwards.

The current spike to $120 for a barrel of crude already rendered IATA's original 2012 profit forecast of $3.5 billion for the global industry obsolete, as it was based on an oil price of $99 a barrel.

The risk of significantly higher fuel costs was "especially rising," the group said, in the face of mounting tensions between the West and Iran over Tehran's nuclear weapons program.

Iran has threatened to close the Strait of Hormuz - a key oil route - if sanctions against it were further toughened or if the country was attacked.

uhe/ng (dpa, AFP, Reuters)