GENEVA – The global airlines industry on Wednesday lowered its profit forecast for this year after the Ukrainian crisis caused a spike in the price of fuel.
The cost of crude oil, jet fuel and other energy sources jumped last week after Russia took effective control of Ukraine’s Crimean Peninsula. Investors feared escalating U.S. and European sanctions on Russia, one of the world’s largest energy suppliers.
“The situation in the Ukraine is causing instability that is pushing up the price of oil. And that was the main negative driver of today’s downwards revision,” said Tony Tyler, director-general and CEO of the International Air Transport Association.
The Geneva-based group, which represents 240 airlines, or 84 per cent of total air traffic, says the profit this year is expected to be $18.7 billion, a downgrade from the $19.7 billion it forecast in December. Oil prices are now expected to average $108 per barrel, $3.50 per barrel above previous projections.
Despite the downgrade, the profit figure is still on track to be a record for the industry. It is well above the $12.9 billion earned in 2013 and also higher than the previous record profit of $17.3 billion made in 2010.
Revenues in 2014 are forecast to total $745 billion, while the profit margin is expected to remain thin, at just $5.65 per departing passenger this year. That would be up from $4.13 per passenger in 2013, but still below the $6.45 notched in 2010.
The cost of fuel isn’t the only challenge facing airlines this year.
Tyler highlighted the Venezuelan government’s decision to keep foreign airlines from taking $3.7 billion in earnings out of the country as well as the recent disappearance of Malaysia Airlines Flight MH370 over Southeast Asia.
The Venezuelan government has imposed rigid controls on money flows, preventing some carriers from repatriating earnings. “This ignores international treaties. And it is making it very difficult for airlines to maintain their commitment to that market,” Tyler told reporters.
When asked about the two passengers on the flight that were travelling on stolen passports, Tyler said it’s the responsibility of governments — not airlines — to secure their borders. Only government authorities have access to a database showing when passports are lost or stolen, he said.