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Airline industry group slashes profit forecast for 2011

By the CNN Wire Staff
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IATA slashes 2011 profit forecast
  • Oil prices, political unrest and natural disasters are to blame for revised numbers
  • Earthquake in Japan affecting profitability for Asia-Pacific and North American carriers
  • Political turmoil is affecting profitability in the Middle East and Africa
  • Industry group has slashed profit forecast once already in 2011

(CNN) -- Airline industry profits will fall worldwide in 2011, according to the International Air Transport Association (IATA), thanks to rising fuel prices, political unrest and natural disasters.

"Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year," the association's Director General and CEO Giovanni Bisignani said in a statement released Monday. "That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance."

The main cause of reduced profitability is the high cost of fuel. Airlines pay an additional $1.6 billion in costs for ever dollar increase in the average yearly price of oil, the association said. The industry's fuel bill is expected to rise to $176 billion in 2011, an estimated 30% of airline costs.

High fuel costs have also hurt growth rates in both the cargo and passenger markets. The association has revised downward projections for both categories. The group expects the cargo market to expand by only .6% and the passenger market to expand by only 1.2% in 2011.

The Japanese earthquake and tsunami will have an impact on carriers in both the Asia-Pacific and North American regions, the association said.

However, Asia-Pacific airlines are expected to be the most profitable in 2011. They're forecast to bring in $2.1 billion in profits for the year. That's still a dramatic drop from the $10 billion the region achieved in 2010, according to the association.

Political unrest in the Middle East and North Africa is hurting profitability in both regions.

Profits from Middle East carriers will drop from $900 million in 2010 to $100 million in 2011, the group said. And African carriers are expected to post a loss of $100 million in 2011.

Unrest in Egypt and Tunisia has had a particular impact because of the large tourism industries in both countries.

The debt crisis in Europe has affected carriers there, the association said. Airlines are still expected to post a profit of $500 million this year, down from $1.9 billion in 2010.

Profits fell in Latin America as well, from $900 million to $100 million, but the region is the only one in the world that can boast of profitability three years in a row.

The association has already downgraded its profit forecast once.

In March of this year, the group forecast an $8.6 billion profit forecast. Monday's revision denotes a plunge in profit expectations of 54%.

And the modified forecast represents a staggering 78% drop when compared with an $18 billion net profit recorded in 2010, according to the association.