Oil price rise likely to offset air-traffic gains, IATA says

March 2, 2011 - 0:0
Airlines worldwide face “a very challenging year” as the price of oil rises, even after air- traffic growth accelerated in January, the International Air Transport Association said on Tuesday. International scheduled traffic rose 8.2 percent in January, compared with a year earlier, IATA said in a statement. That beat the 5.4 percent growth logged in December when wintry weather in Europe and North America curbed traffic. Fuel costs have surged amid concern that the turmoil in Libya will crimp supply, and IATA estimates that every $1 increase in the per-barrel price of oil costs the airline industry $1.6 billion. Oil is trading near a 29-month high after gaining 14 percent last week. “With most major indices pointing to strengthening world trade and economic growth this is positive for the industry,” Giovanni Bisignani, IATA’s chief executive officer, said in the statement. “But we are all watching closely as events unfold in the Middle East. The region’s instability has sent oil prices skyrocketing.” IATA on Dec. 14 forecast carriers would log net income of $9.1 billion in 2011 based on oil at $84 a barrel, and will provide an update of its outlook March 2. Crude oil for April delivery on Tuesday traded more than $15 higher than that price, at as much as $99.96. Airlines’ net income last year has been estimated at $15.1 billion by IATA. Aer Lingus, Ireland’s second-biggest carrier, said on Tuesday that the rise in oil prices would cut earnings this year, and International Consolidated Airlines Group SA, the company formed by the merger of British Airways and Iberia, said Feb. 25 that its fuel bill may rise 31 percent this year. Demand for air travel has rebounded following the global recession, with traffic now 18 percent higher than the lowest point reached in early 2009, the trade body said. The average passenger load factor, a measure of how full planes are, fell to 75.7 percent from 77.2 percent in December after capacity grew 9.1 percent in a year, outstripping the increase in air traffic. Air freight grew by 9.1 percent in January, compared with a year earlier, and is now 39 percent above the low point reached at the end of 2009, the trade body said. (Source: Bloomberg)