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How Much Money Can Airlines Lose?

The International Air Transport Association almost doubled its 2012 loss forecast for European airlines and said the continent’s debt crisis could wipe out an expected global profit.

Carriers in Europe may lose $1.1 billion this year, compared with a March forecast for a $600 million loss, the airline body said today at its annual meeting in Beijing. It reiterated a forecast for a $3 billion global profit. The worldwide estimate could be reduced if the European economy worsens more than expected, the group said.

“If there’s a full-blown crisis, all bets are off,” Tony Tyler, head of IATA, which represents about 240 carriers, said in a Bloomberg TV interview yesterday. “It will have a big impact on the world economy and a huge impact on airlines.”

Global profits are already set to fall from $7.9 billion last year, as recessions in the U.K., Spain and other European countries damp demand and erode gains from lower fuel prices. Deutsche Lufthansa AG (LHA), Air France-KLM (AF) Group and International Consolidated Airlines Group SA (IAG), Europe’s three biggest full- service carriers, have all announced plans to cut staff or restructure operations following first-quarter losses.

IATA cut its forecast for Asia-Pacific carriers’ earnings to $2 billion from $2.3 billion. Slower growth in China and India are also damping travel, the group said.

IATA raised its profit forecast for North American carriers to $1.4 billion from $900 million. The airlines will boost earnings from $1.3 billion last year as they refrain from adding many flights amid a 0.5 percent growth in demand, the slowest pace worldwide, the group said.

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  1. Rick Goring Says:
    June 19, 2012 at 7:48 am

    These are valid comments; however, lets get down to the core of the issue. It is not lost revenue, it is high costs (fuel, labour, airport security and other fees, etc) with low prices due to the heavy competition out there. Passengers are not as loyal as they were prior to the 1990’s. Airlines will, in order to fill the planes, sell seats at prices that are not covering all the costs (fixed and variable). With the recession being felt around the world, people are looking for cheap flights with as many frills as possible. On the other hand, Airlines, with labour expense higher than maybe what the industry can handle and fuel prices yo-yoing up and down, are placing seat sales everywhere. Until the open skies and more competition ideas calm down a bit and the various airlines solidify their base and bring down at least labour and airport expenses, there is no way that these companies will be able to be profitable. That is my two cents worth.

    • DataSwell Says:
      June 24, 2012 at 5:03 pm

      Some of the US Major airlines are making solid returns now…even with fuel price volatility. Key has been letting the industry restructure through bankruptcy and consolidation, and reach an equilibrium. For the time being, US airlines are managing through by reducing capacity and raising fares to deal with higher fuel prices. The European airline industry still has to go through the restructuring as many traditional flag carriers costs are out of line with an increasingly competitive industry. If we let the industry restructure, albeit painful, the global airline industry can be long term profitable.