Surging oil prices are forecast to dent airlines’ profits and could significantly hurt their bottom lines next year, the boss of airline industry group International Air Transport Association (IATA) warned today. Oil has been trading at 3.5-year highs recently amid concerns about supply disruptions caused by the United States’ decision to quit the Iran nuclear deal and unrest in Venezuela.

The IATA is set to release a lower profit forecast for the global airline industry at its annual meeting in Sydney next week, with rising fuel costs a key factor. “Significantly, probably next year,” the group’s chief executive Alexandre de Juniac told reporters in Sydney of the scale of the impact on carriers’ profits.

IATA in December tipped record industry profits of more than USD 38 billion for this year when the price of a barrel of crude was at USD 60. Since then, the price has steadily risen towards USD 80, prompting the revised outlook, although profits were “still positive” despite the pressure on earnings, de Juniac said. “If it continues above USD 80, then it will bite hard... on the results of the airlines,” he added. “We see more forces pushing prices up than down.”

Higher oil prices could see airlines pass the buck to passengers through increased fares, but de Juniac said that had yet to occur in a highly competitive market. He also cautioned that the aviation sector was likely to be at the peak of its profitability cycle after nine years of gains, with infrastructure and labour costs as well as higher taxes also weighing.

Despite the concerns, the IATA chief said a possible fall in profits could be less steep than in previous boom-bust cycles as carriers had “significantly improved” their resilience in recent years. “The airlines have been restructured and re-engineered properly to have stronger (profit and loss) and stronger balance sheets,” he said.

IATA represents 280 airlines that make up 83 per cent of global air traffic.

Related Topics