Airlines face profit shock due to rising cost of oil

The International Air Transport Association (IATA), which has more than 200 member airlines, is today expected to cut industry profits forecasts.

The association has already flagged a 2011 collective profit of $8.6 billion (5.2bn) - 52 per cent down on the 2010 total.

But Giovanni Bisignani, the head of the IATA, has admitted that even that figure now looks optimistic, given that oil prices have risen from $96 a barrel in March, when its original estimate was made, to about $110.

The IATA estimates that aviation fuel accounts for 30 per cent of airlines' expenses.

Bisignani also pointed the finger at Japan's earthquake, tsunami and subsequent nuclear scare and the political unrest in the Middle East, which have added to the gloomy outlook.

Speaking ahead of today's IATA meeting in Singapore, Bisignani said: "This year started in a terrible way."

He warned that rising oil prices were "a big, big problem" for airlines and noted: "Japan represents 10 per cent of the total industry revenues - that will impact strongly."

Japan reported a 20 per cent fall in air traffic during April, which is thought to have knocked 1 per cent off international travel.

Last month budget airline EasyJet reported that its first-half losses had nearly doubled over the winter as it battled against strong headwinds of rising fuel costs and new passenger taxes.

Bisignani yesterday attacked plans by the European Union to force all airlines using its air space to join a trading scheme to off-set their carbon dioxide emissions.

Airlines claim that the scheme will increase costs and comes at a time when fears are growing about a faltering global economy, which could slash industry profit expectations. Governments and airlines have been piling on pressure, some describing the forced inclusion of global airlines as illegal.

Bisignani said: "The last thing we want to see is a trade war."