Debt crisis may undo benefit of cheaper oil to airline industry

 

FRESH FEARS over the global economy could unravel the benefit of cheaper oil prices and keep a lid on financial forecasts for the airline industry when its chiefs gather in China this weekend for their annual summit.

An 8 per cent drop in oil prices this year has delivered a quick fix to an industry severely damaged by record fuel costs – but the main reasons for the drop, Europe’s debt crisis and a slowdown in China’s economy, cast a shadow over its recovery.

“The reduction in fuel prices is a great thing for the airline industry, but they are coming down because of concerns over world economic activity,” said Tony Tyler, director general of the International Air Transport Association (IATA).

“If the world enters an economic slump, that will be even worse for the industry than the higher fuel price was on its own,” said Mr Tyler as heads of most of the world’s airlines flew to Beijing for a three-day annual meeting starting tomorrow.

IATA, whose 240 members account for 84 per cent of world air traffic, is expected to leave its overall industry profit forecast broadly unchanged at the June 10th-12th meeting. A breakdown of the widely watched forecast is likely to reflect widening regional disparities as Europe’s debt crisis shows no signs of abating, and trade shifts to the Middle East.

Global airline industry profits halved in 2011 to $7.9 billion and are expected to halve again this year. In March, IATA predicted global airlines would make profits of $3 billion in 2012, based on an average Brent crude price of $115 a barrel. The benchmark North Sea price is now below $100. Mr Tyler said the latest update would balance euro zone and oil price risks against the positive effect of robust traffic, which rose 7.1 per cent in the first four months of the year. – (Reuters)