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Thursday, December 8, 2011

IATA: Eurozone Crisis Could Hit Aviation

The International Air Transport Association (IATA) predicts weaker profitability for global airlines as crisis in the Eurozone and a potential global recession depressing the outlook.

In its outlook released Thursday, IATA said 2011 profitability remains weak at $6.9 billion for a net margin of 1.2 percent. Looking ahead to 2012, IATA downgraded its central forecast for airline profits from $4.9 billion to $3.5 billion for a net margin of 0.6 percent. Passenger demand is expected to expand by 6.1 percent, stronger than the 5.9% forecast in September. In a worst case scenario, should the Eurozone crisis evolve into a full-blown banking crises and European recession, IATA estimates the global aviation industry could suffer losses exceeding $8 billion in 2012.

“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion — the largest since the 2008 financial crisis,” said Tony Tyler, IATA’s Director General and CEO.

Regionally, European carriers are by far in the most challenging position. Higher passenger taxes and weak home market economies have limited profitability in Europe. The region’s carriers are forecast to generate a collective profit of just $1 billion, down from the previously forecast $1.4 billion. Low profitability has been despite European airlines being one of the fastest growing regions in terms of traffic this year. North American carriers have seen yield and load factor improvements as a result of tight capacity management, which has improved profitability to $2 billion (up from the previously forecast $1.5 billion). The U.S. economy has also grown at a faster pace than Europe, according to IATA. However, the recent bankruptcy filing of American Airlines indicates the region faces intense competitive challenges as well.

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