Improving airline business faces oil price threat

(CNS): Airline traffic grew strongly in January but the rise in oil prices threatens to weigh heavily on airlines, the Air Transport Association (IATA) warned on Monday. Passenger traffic rose 8.2 percent and freight by 9.1 percent in January against thesame month in 2010, with air travel volumes now up 6 percent from their pre-recession peak in early 2008. But "even with good news on traffic 2011 is starting out as a very challenging year for airlines" due to the rise in oil prices, Giovanni Bisignani, IATA’s director general and CEO, said in a statement. IATA’s forecast for 2011 made in December anticipates an industry profit of US$9.1 billion or a 1.5% profit margin on US$598B in revenues but that was based on an average annual oil price of US$84 per barrel.

Benchmark Brent crude was trading at US$112.33 a barrel at midday on Monday and for each dollar the price of oil increases, the industry’s costs rise US$1.6 billion. IATA said that it plans to issue a revised 2011 forecast on Wednesday.