The FINANCIAL -- The International Air Transport Association announced revisions to its industry outlook. For 2011, profitability remains weak but unchanged at $6.9 billion for a net margin of 1.2%.

Looking ahead to 2012, IATA downgraded its central forecast for airline profits from $4.9 billion to $3.5 billion for a net margin of 0.6%.

The Eurozone crisis puts severe downside risk on the 2012 outlook as illustrated by the recently published OECD economic outlook. In a worst case scenario, should the Eurozone crisis evolve into a full-blown banking crises and European recession, IATA estimates that the global aviation industry could suffer losses exceeding $8 billion in 2012.This slightly stronger-than-expected passenger performance is offsetting worse-than-expected cargo performance and somewhat higher-than-anticipated oil prices.

At an average oil price of $112 per barrel, the industry’s 2011 fuel bill is expected to be $178 billion. A downward trend in cargo since mid-year means that cargo likely will finish the year with a 0.5% contraction in volumes and flat yields.Even if government intervention averts a banking crisis it is unlikely that Europe will avoid a brief recession. Business and consumer confidence has already fallen too far.

Global GDP growth forecasts for 2012 have been revised downwards to 2.1%. Historically the airline industry has seen profit turn into loss whenever global GDP growth falls below 2%. This is driving the downgrade in the 2012 outlook.The OECD’s last economic outlook carried a risk assessment on the European sovereign debt crisis, which caused IATA to develop a second scenario for 2012 taking into account the possibility of the Eurozone crisis deteriorating into a renewed banking crisis. Based on the OECD’s view that this scenario would cut global GDP growth to 0.8%, IATA estimates that this has the potential to cause global industry losses of $8.3 billion.

In this scenario, all regions would fall into losses. Europe would be expected to post the deepest losses at $4.4 billion, followed by North America at $1.8 billion and Asia-Pacific at $1.1 billion. The Middle East and Latin America would both be expected to post $400 million losses, while Africa would be $200 million in the red.This scenario is based on global GDP growth falling to 0.8% in 2012 driven by Europe descending into deep recession.

Historically, GDP growth rates below 2.0% have resulted in the airline industry producing a net global loss. In this scenario, airlines would see growth in passenger demand grind to a halt and a 4.7% contraction in cargo markets. Both passenger and cargo yields would fall by 1.5%.

Some relief in the fuel price would be expected. Based on oil at $85 per barrel, the fuel bill would be $183 billion and consume 31% of costs. However, overall expenses would be expected to grow by 1.9% to $592 billion. Revenues would see a fall of 1.3% to $589 billion. The net result would be an $8.3 billion loss and net margin of minus 1.4%.

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