IATA: 2012 airline profits to drop 29 percent

SINGAPORE — Global airline earnings will likely drop 29 percent next year as Europe's debt crisis and higher costs pinch profitability, the International Air Transport Association said Tuesday.

The industry's earnings will likely fall to $4.9 billion in 2012 from $6.9 billion this year, the association's chief executive Tony Tyler told reporters in Singapore. But the $6.9 billion estimate for this year is up from IATA's June forecast of $4 billion reflecting higher passenger numbers.

IATA, whose 230 member airlines carry 93 percent of all passengers, expects industry revenue to rise to $632 billion next year from $594 billion this year while costs jump to $620 billion from $579 billion.

"It looks like we're headed for another year in the doldrums," said Tyler, the former CEO of Hong Kong-based airline Cathay Pacific. "A long, slow struggle lies ahead."

Weak global economic growth, higher fuel costs and increasing competition from low-cost carriers have squeezed profit margins. IATA expects net margins of 1.2 percent this year and 0.8 percent next year.

Growth in the number of passengers will probably slow despite the global economy expanding about the same next year as this year, Tyler said. IATA sees passenger growth slumping to 4.6 percent to 2.96 billion from this year's 5.9 percent increase to 2.83 billion.

Global gross domestic product will likely expand 2.5 percent this year and 2.4 percent next while the average price for Brent crude should drop to $100 from $110, IATA said.

However, IATA expects fuel costs for airlines to jump next year by 14 percent to $201 billion, or 32 percent of total expenditures, because hedges — contracts that airlines use to fix the jet fuel price — mean many carriers are stuck with higher prices for the coming year.

Tyler said profits for European carriers will likely plunge to $300 million next year from $1.4 billion this year as the region's debt crisis weighs on demand for travel.