Flying is safer than it has ever been. But, the state of our industry is fragile,” is how the director-general and CEO of International Air Transport Association (IATA), opened the global aviation body’s annual general meeting in Beijing on Monday. In its revised industry outlook for 2012 for the global airline industry, IATA left unchanged its $3 billion net profit forecast for the global airline industry, having earlier cut the forecast in March from $3.5 billion, likely posting a second consecutive year of net profit declines. Calling 2012 another “challenging year”, Tyler said that IATA’s projected revenue of $631 billion in 2012 and a profit of just $3 billion would yield a net profit margin of just 0.5 per cent. “The $3 billion industry profit forecast has not changed. But almost everything in the equation has. Demand has been better than expected, so far this year. And fuel prices are now lower than previously anticipated, but that’s on the expectation of economic weakness ahead,” said Tyler, adding that the Eurozone crisis is standing in the way of improved profitability. As the Eurozone crisis deepens, the revised forecast is based on a weaker European economic environment than previously forecast in March,” he said. Compared with the previous forecast in March, North American and Latin American carriers are expected to see improved prospects in 2012, while the outlook for African carriers is unchanged, said IATA. However, the outlook for European, Asia-Pacific and Middle Eastern carriers has been downgraded, with European losses now expected to be $1.1 billion (nearly double the previously forecast $600 million loss). Challenges deepen: The latest forecast comes as top airline executives gather in Beijing to discuss industry challenges they will need to tackle, including European debt crisis, high oil prices, increasing competition and European Unions’ emissions trading scheme (ETS). However, the projection comes with some serious downside risks, according to Tyler, who said that the high oil price is among the main reasons for the industry’s “anaemic global profitability”. “Oil prices have softened slightly. But we still expect an average of $110/barrel. That will leave us with a fuel bill of $207 billion — almost equal to the GDP (gross domestic product) of the Philippines or the Czech Republic,” he pointed out, adding that despite this softening, fuel will account for “33 per cent” of airlines’ operating costs this year, the same as in 2008 when oil prices spiked. “And political risks could easily push the price higher,” he further warned. However, the crisis in the Eurozone poses as the aviation industry’s “biggest and most immediate risk”, Tyler said. “If it evolves into a banking crisis we could face a continent-wide recession – dragging the rest of the world and our profits down,” he added. Meanwhile, factors such as a fall in oil prices, stronger than expected growth in passenger traffic and a bottoming out of the freight market, seem to be driving some improvements in the profitability outlook, according to the aviation watchdog. However, this is offset by the “continued and deepening” European sovereign debt crisis, which has led markets to expect a further deterioration and damage to economic growth, the adverse impact of which has been built into this forecast, as pas IATA’s estimates. “The industry’s profitability is balancing on a knife edge. If the bottom line worsens by even the equivalent of just one per cent of revenue, our $3 billion profit very quickly becomes a $3 billion loss,” said Tyler. “If Europe crisis worsens and the political situation worsens in the Middle East, we could easily slip into weaker growth,” added Brian Pearce, IATA’s chief economist. Costs and revenues: Limited capacity growth, high asset utilisation and lower oil prices will help to contain cost increases in 2012 to 7.3 per cent, down from a rise of 10.6 per cent in 2011, according to IATA. Revenue growth, however, is expected to slow more significantly — from 9.3 per cent last year to 5.7 per cent this year, the aviation body revealed in its revised industry outlook. “Keeping revenues ahead of costs is the constant challenge in the airline industry,” said Tyler. Traffic growth: Despite everything, the strength of travel demand in the first part of this year has caused an upward revision to the industry forecast for air travel growth to 4.8 per cent from 4.2 per cent in the previous forecast. Passenger numbers are expected to reach 2.966 billion this year, up from 2.835 billion in 2011, according to IATA. From gulfnews