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Rising fuel prices could cost airlines $500 million in profits, group says

The International Air Transport Assn. reduces its estimate of the industry's 2011 earnings to $8.6 billion from $9.1 billion.

March 03, 2011|By Hugo Martín, Los Angeles Times

Higher fuel costs and turmoil in the Middle East and North Africa have prompted a global airline trade group to project lower profits for the industry this year.

The International Air Transport Assn. estimated Wednesday that the industry would earn $8.6 billion in 2011 from total revenues of $594 billion, down from the $9.1 billion in profits the trade group had estimated in December.

Although demand for airline seats has continued to increase in the last few months, it will not totally offset the higher fuel costs, according to the trade group. Fuel typically represents 25% to 30% of an airline's overall expenses.

"Political unrest in the Middle East has sent oil over $100 per barrel," said Giovanni Bisignani, the trade group's director general. "That is significantly higher than the $84 per barrel that was the assumption in December."

He added that higher fuel prices would reduce the profit margin for the industry to a "pathetic 1.4%." Jet fuel prices have increased by about 50% in the last 12 months, according to the trade group's website.

In North America, an improving economy is expected to help generate $3.2 billion in profits for commercial air carriers in 2011. But that is down from the $4.7 billion in profits made by airlines in North America in 2010, according to the trade group.

Until tensions in the Middle East sparked higher oil prices, the airline industry's financial future seemed bright. The trade group predicted the number of airline passengers would grow by 5.6% in 2011 and cargo volumes would rise 6.1%.

Based on published airline schedules, the industry plans to increase capacity by 6% in 2011, with most of the extra seats coming from the addition of 1,400 new planes this year, according to the trade group.

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