Global Aviation Industry may Post Millions of Losses with Continuous Increases in Crude Prices

The industry of global aviation can incur losses of over $5 million this 2012 if crude prices increase to more than expected levels in the midst of growing tensions over the nuclear program of Iran, said its trade group.

According to the International Air Transport Association, it is presently anticipating a profit decline to about $3 billion this year. That level is lower compared to its $3.5 billion forecast in December that was based on expectations that crude prices will be around $115 per barrel. Currently, the benchmark New York crude oil price is at its highest level in nine months of about $107 per barrel.

Tony Tyler, the chief executive of IATA, said that the reduced profit forecast this year could result to over $5 billion in losses if oil prices peak to $150 per barrel because of Iranian and Western tensions.

He emphasized that the aviation industry is sensitive and pointed to a global growth expectation of 2% this 2012. Moreover, he said that based on history, when GDP declines to a level lower than 2%, the industry posts an overall loss. As such, it will not be surprising to change their highly conservative revenue forecast to a net loss.

Tyler said that it is certainly crude oil prices that could lead to shock that links to a GDP growth reduction of 1.7% and a loss of over $5 billion.

However, the trade group expressed that its most negative concerns way back in December have been relieved somewhat in recent weeks. It cautioned that airlines can incur losses amounting to $8.3 billion in case the crisis in the 17 nations of the Eurozone worsens. However, the group also said that a great liquidity operation of Europe’s Central Bank and another Greece bailout temporarily eased its worries.

According to Mr. Tyler, it seems that the worsening sovereign debt crisis of Europe have been prevented at the moment. However, this has been substituted by increasing current crude oil prices as a major economic headwind.

In spite of the apparent improvement in the outlook toward Europe, IATA expressed that carriers in the region, even the highly competitive airlines that are outperforming their peers, will most likely incur collective losses amounting to $600 million in the coming year. That amount is lower compared to the weak profit amounting to $1 billion last year.

Moreover, IATA changed its 2011 profits by increasing it from $6.9 billion to $7.9 billion saying that the rise was mainly caused by a much better than anticipated business among carriers in China.

The forecast of IATA is for the whole aviation industry, and not just those 240 member airlines which account for 84% of all cargo and passenger transport.

By Chris Termeer