Rising Fuel Prices Likely To Cut Into Airline Industry’s Profits

Rising Fuel Prices Likely To Cut Into Airline Industry’s Profits

The International Air Transport Association, or IATA, cut its industry-wide profit forecast to $8.6 billion from $9.1 billion, based on rising fuel prices. The $9.1 billion profit estimate, made in December, was based on an average oil price of $84 per barrel; that estimate has since been raised to $96 a barrel for the year.

For every $1 increase in the price of oil, industry costs increase $1.6 billion, according to IATA estimates. The Geneva based Association represents 203 carriers that together account for 93% of international air traffic. Airlines had a banner year in 2010; collectively the industry had profits of $16 billion. Airline stocks have been battered the last 2 weeks however, with the NYSE Arca Airline Index down 10%, vs. a 2% drop in the S&P. In that time frame, shares of American Airlines (NYSE:AMR) have slid 13%, Delta Air Lines (NYSE:DAL) is down 10% and US Airways Group (NYSE:LCC) is down more than 20%   Source: Airlines
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