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Airlines slash profit forecasts by half after MENA unrest

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The International Air Transport Association (IATA) cut its profit forecasts of global airlines by more than half due to Middle East and North Africa unrest partly weighing on the industry’s recovery.

IATA, which represents 280 global carriers, said it expects industry profits of $4 billion in 2011, down from a previous forecast of $8.6 billion, according to Reuters reports.

If the forecast is accurate, it would mark a 78 percent decline from the post-recession profit of $18 billion that the world’s airlines made in 2010.

High oil prices and turmoil in disaster struck Japan also contributed to the slump in profit expectations.

“The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel,” the IATA's director general, Giovanni Bisignani, told the group’s annual general meeting in Singapore.

Airlines had rebounded faster than anticipated from last year’s recession, supported by higher traffic and keeping a lid on spare capacity.

IATA’s new profit outlook marks a “dismal” 0.7 percent margin this year on expected revenues of $598 billion making for little buffer left against further shocks, Mr. Bisignani said.

The high oil price is the major strain on the industry as IATA forecasts a $110 per barrel average for Brent crude in 2011.

Previously, the airline body estimated Brent crude would average $96 a barrel this year.

IATA said airlines could expect to pay an additional $1.6 billion for every one-dollar increase in the average annual oil price.

“With estimates that 50 percent of the industry’s fuel requirement is hedged at 2010 price levels, the industry 2011 fuel bill will rise by $10 billion to $176 billion,” IATA said in a statement.

Meanwhile, passenger growth is also expected to drop. Japan-based brokerage Nomura reduced its forecast for passenger growth in the Middle East region to 7 percent a year from 2011 to 2016, due to recent political uprisings in the region. It had previously expected 10 percent passenger growth per year.

Carriers from Asia-Pacific and Africa are expected to be the worst hit by the region’s political unrest.

Asia-Pacific carriers are seen earning just $100 million in profits, down sharply from $900 million last year, IATA said.

Meanwhile, Africa is expected to suffer a loss of $100 million as the unrest in Egypt and Tunisia particularly continues to affect the tourism sectors.

IATA, the Geneva-based airline body founded in 1945, represents some 230 carriers accounting for more than 90 percent of scheduled air traffic worldwide.

(Eman El-Shenawi, a writer at Al Arabiya English, can be reached at: eman.shenawi@mbc.net)