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Airlines predict plunge in profits as oil prices rise
March 22, 2012

Climbing fuel prices will cut into airline profits worldwide more sharply than anticipated this year, the industry predicted .

Tony Tyler, head of the International Air Transport Association, which represents the world's biggest airlines, projected $3 billion in combined profits globally for the industry — down more than 60% from the $7.9 billion in profits anticipated for 2011.

That's $500 million less profit than the group estimated in December. The association's pessimism is driven by rising oil prices, as fuel consumes roughly 35% of airlines' operating costs.

"While we have seen some improvements in economic prospects, any further significant rise in fuel price will almost certainly turn weak profits into losses," Tyler said in Geneva.

With an overall profit margin projected at 0.5%, Tyler added that "it will not take much of a shock to push the industry into the red for 2012."

The association projects average oil prices rising to $115 a barrel for the year from the $99 level forecast in December. Oil has been trading in New York at about $107 a barrel in recent days, a nine-month high.

Higher oil prices already are prompting U.S. airlines to raise domestic airfares and warn their profits will be dented.

Southwest Airlines, the most consistently profitable of the big U.S. airlines, already has announced that high fuel costs will keep it from posting a profit for the first three months of the year.

Delta Air Lines has said it expects a lower first-quarter profit margin of 1% to 3%, down from the 2% to 4% that it previously projected.

The IATA now projects that North American carriers will deliver a profit of just $900 million this year, down from the previously forecast $1.7 billion.

"While we have seen some improvements in economic prospects, any further significant rise in fuel price will almost certainly turn weak profits into losses," Tyler said.

Source :- http://travel.usatoday.com/flights/