African carriers were expected to post a collective loss of $100-million this year, as airlines struggled to make full use of available capacity, while the oil price continued to rise, the International Air Transport Association (Iata) warned on Tuesday.

Iata director-general and CEO Tony Tyler said that although the global economy seemed to respond positively to the European debt crisis being averted for the time being, rapidly rising oil prices represented a new threat to the global aviation industry.

The organisation downgraded its industry outlook for 2012 to a profit of $3-billion, at an average price margin of 0.5%. This represented a $500-million downgrade from the organisation’s December forecast.

Tyler said he expected the average oil price to hover near $115/bbl, with a spike to $150/bbl possible in the second half of the year.

“The risk of a worsening eurozone crisis has been replaced by an equally toxic risk – rising oil prices. The damage is already being felt with a downgrade in industry profits to $3-billion,’’ he said in a telephone conference.

He explained that airline performance was closely tied to global gross domestic product (GDP) growth and historically, when GDP growth drops below 2%, the global airline industry posts a collective loss.

“With GDP growth projections now at 2% and an anaemic margin of 0.5%, it will not take much of a shock to push the industry into the red for 2012,” said Tyler.

This is the case with African airlines, which are struggling to recover from low capacity use. They now have to deal with the added challenge of spiking oil prices.

Some of the region’s economies were growing strongly and generating expanding demand for air transport. “However, passenger and freight load factors were on average very low for airlines in the region, which will make it difficult to recover the rise in fuel costs,” Tyler said.

The increased oil price would increase fuel to 34% of the average operating costs of airlines and see the overall industry fuel bill rise to about $213-billion.

Tyler said a number of commentators had also pointed to a scenario where an escalation of the crisis in Iran could see the closure of the Strait of Hormuz, cutting off vital supply links for oil. In this scenario, oil prices could spike at $150/bbl for crude oil by mid-year, resulting in a full-year average of $135/bbl. In such a scenario, global GDP growth would fall to 1.7%, plunging the entire industry towards losses of over $5-billion.

“While we have seen some improvements in economic prospects, any further significant rise in the fuel price will almost certainly turn weak profits into losses,” said Tyler.

Iata expected operators in all world regions to post reduced profits during the year, while Europe and Africa were the only regions expected to post losses. European carriers were expected to post a collective loss of $600-million.

North American carriers were expected to deliver a profit of $900-million, while Latin American operators were expected to deliver a profit of $100-million.

Asia Pacific carriers were expected to post the best performances at $4.8-billion in collective profit.

Middle East carriers were expected to realise profits of $500-million.

Meanwhile, the overall combined passenger and cargo capacity were expected to grow by 3.2% during the year, which was behind the 3.6% expected expansion in demand. This was a reversal of December’s expected capacity expansion outstripping demand. Both passenger load factors and aircraft use have returned to, or above prerecession levels.

“A sustainable airline industry could deliver much more to the global economy, but the unintended consequences of many government policies have contributed to keeping the industry on a knife-edge between profit and loss. Shortsighted excessive tax collection in many markets undercuts aviation’s ability to provide access to the connectivity that drives global business,” Tyler said.

Source: www.engineeringnews.co.za