Geneva: The global aviation industry could run up losses of over USD 5 billion this year if oil prices spike by more than anticipated in light of the tensions building up over Iran's nuclear programme, the industry's trade group said on Tuesday.
The International Air Transport Association, or IATA, says it now expects earnings will likely decline to USD 3 billion in 2012. That's down from December's forecast of USD 3.5 billion, based on an expectation that oil prices will average USD 115 a barrel.
At present, the benchmark New York rate is trading at nine-month highs around USD 107 a barrel. Tony Tyler, IATA's chief executive, said the industry's diminished profit forecast for 2012 could turn to losses of more than USD 5 billion if oil prices spike to USD 150 a barrel due to Western tensions with Iran.
The IATA said that the global aviation industry could incur losses in billions of dollars if oil prices rose by more than anticipated, in light of the tensions building up over Iran's nuke programme.
"I must emphasise that the industry is fragile," he said, pointing to global growth forecasts of 2 per cent for this year.
"Historically, if GDP falls below 2 per cent, the industry returns a collective loss. So it would not take much of a shock to turn our very modest profit projection to a net loss."
"Indeed that shock could be oil," he added. "Such a shock would link to a fall in GDP growth to 1.7 per cent and we could see losses in excess of USD 5 billion."
However, the Geneva-based trade group said its most pessimistic fears of last December have been somewhat eased. It warned then that airlines could post losses of USD 8.3 billion if the crisis in the 17-country eurozone got much worse.
But the trade group says a massive liquidity operation by the European Central Bank and a second bailout for Greece have eased its concerns, at least temporarily.
"It appears that a worsening of Europe's sovereign debt crisis has been avoided for now," said Tyler. "But this has been replaced by rising oil prices as the number one risk that the industry faces."
Despite the seeming improvement in sentiment towards Europe, IATA said European carriers, including low-cost airlines that are performing better than other traditional competitors, will likely post collective losses of USD 600 million next year down from weak profits of USD 1 billion in 2011.
IATA also upwardly revised its profits for 2011 to USD 7.9 billion, from USD 6.9 billion, saying the increase was primarily due to much better-than-expected business among Chinese carriers.