Airlines should brace for tough times, IATA says

Monday, 3 October 2011 00:00 -     - {{hitsCtrl.values.hits}}

HONG KONG (Reuters): The International Air Transport Association (IATA) warned of tough times ahead for the airline industry and the head of Thai Airways said last week financial market turmoil as the European and U.S. economies slow down was “frightening”.

IATA Director General and Chief Executive Tony Tyler also said the European Union’s carbon emission trading system would add to the financial pressures on airlines despite an offer of free permits, which he criticised as “linguistic gymnastics”.

IATA has already warned that a weak global economy would prompt a 29-percent fall in airline profits in 2012 and cut the industry’s profit margins to a wafer thin 0.8 percent from 1.2 percent this year.

“There is so much uncertainty over the world economy, obviously in Europe and United States,” Tyler said at a media briefing.

IATA, whose 230 members carry more than 93 percent of scheduled international air traffic, forecast global economic growth of 2.4 percent in 2012, lower than the International Monetary Fund’s projection of 4.0 percent.

“We are not seeing a recession,” said Tyler.

Still, global growth is closely tied to the financial performance of airlines. Whenever growth slipped below 2 percent, the airline industry has lost money, IATA says.

IATA forecasts industry profits in 2012 will fall 29 percent to $4.9 billion from $6.9 billion this year.

Volatility in financial markets in the past week has put more pressure on the aviation industry.

“The recent market meltdown is really frightening,” said Thai Airways International Pcl President Piyasvasti Amranand. “Economies in Europe and the United States are really slowing down,” he said.

“Obviously this has an impact on all airlines flying to Europe. Unfortunately Europe accounts for 37 percent of our passengers per kilometer. We rely very heavily on Europe.”

Stagnating cargo flows in recent months also pointed to weaker markets going forward into next year, IATA said.

“Generally speaking, cargo performance has often been a leading indicator of the passenger side of things so there are good reasons to be cautious about the outlook for passenger traffic over the next few months,” Tyler added.

Some airlines have warned that profits will be affected by carbon permit costs as the aviation sector is scheduled to join the European Union’s emissions trading scheme (ETS) from January next year.

“Europe’s plans contravene international law with extra-territorial application of taxes,” Tyler said.

He described the European Union’s announcement on Monday to give airlines 85 percent of their required carbon emission permits for free in 2012, the first year the sector is included in its emission trading system (ETS), as an example of linguistic gymnastics.

“The fact is they add the cost in the industry in a way that is unhelpful, unproductive,” he said.

The European Union will require all airlines flying into or out of the 27-nation bloc to be include in the scheme that forces polluters to buy permits for each tonne of carbon dioxide they emit above a certain cap.