iata cuts global outlook

FYI -- Interesting read, but I do not believe that VBA will go any lower on this news.

The Article is on market watch for anyone interested
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Airline Stocks

June 6, 2011, 12:37 p.m. EDT

AMR, Delta decline as IATA cuts global outlook
Revenue growth robust for U.S. carriers as fuel costs skyrocketStories You Might Like

Christopher Hinton, MarketWatch

NEW YORK (MarketWatch) ? Airline stocks tumbled Monday after an international trade group slashed its forecast for industry profits because of high fuel costs and softening demand.

The NYSE Arca Airline Index /quotes/zigman/1468713 XX:XAL -1.78% fell nearly 2% to 41.50 points with all but one of its 13 components trading down. Last week, the sector benchmark declined about 2%; it?s off by nearly 15% in the past five months.

Hit the hardest were the global carriers. Shares of Delta Air Lines /quotes/zigman/463579/quotes/nls/dal DAL -2.60% slipped 2.5% to $9.38, American Airlines? parent AMR Corp. /quotes/zigman/217884 AMR -3.36% skidded more than 3% to $5.77 and Brazilian carrier Tam SA /quotes/zigman/410380 TAM -2.61% fell 2.7% to $21.62.

Worldwide, airlines are now expected to rake in a 2011 profit of just $4 billion, the International Air Transport Association said, compared to a prediction of $8.6 billion made in March. At the end of 2010 and before the steep climb in jet fuel, the trade group had expected an industry profit of $9.1 billion.

Last year, the global industry earned $18 billion.

?Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations,? said IATA Director General Giovanni Bisignani in a statement.

The price for Brent oil this year is expected to average about $110 a barrel, up from a previous forecast of $96, IATA said. For each dollar increase in the average price, airlines face an additional $1.6 billion in costs.

Airlines have been jacking up ticket prices to pay for the higher fuel bill, and along with the natural disasters, it?s starting to dissuade people from flying, the group said. Passenger demand is now expected to grow 4.4% over the year, compared to a prior forecast of 5.5%.

As for price-sensitive leisure travelers, demand has declined 3% to 4% over the past five months.

Yields, which reflect ticket prices, are now expected to rise 3% in 2011, double the previous outlook of 1.5%. But despite the higher revenue, airlines are expected to post a ?dismal? 0.7% operating margin, the trade group said.

Meanwhile, growth in global gross domestic product for this year is expected at around 4.5%. according to the International Monetary Fund. Advanced economies are expected to expand about 2.5%, but rising inflation and volatility in the housing and employment market puts the forecast at risk.

Earlier, the organization of 187 countries to promote sustainable economic growth lowered its 2011 GDP growth forecast for the U.K. to 1.5% from 1.7%.

Older jets are a handicap for U.S. airlines
Among North America carriers, an older, less fuel-efficient fleet is exacerbating the higher fuel costs, reducing the regions profit outlook to $1.2 billion from a prior view of $3.2 billion, IATA said.

?The region is also taking a hit on the demand side with 12% of international revenues linked to the Japan market,? according to IATA. ?This is being offset somewhat by a stronger than expected U.S. economy and stronger inbound demand and exports fueled by the weak U.S. dollar. Careful capacity management is expected to see an overall demand increase of 4% balanced by an equal increase in capacity.?

Last week, airlines began releasing their May traffic reports with US Airways Group /quotes/zigman/390962/quotes/nls/lcc LCC -2.81% , Delta and Alaska Air Group
/quotes/zigman/216861 ALK -0.89% indicating revenue growth.

?Revenue trends remain very strong despite increased economic concerns,? said Maxim Group analyst Ray Neidl. ?We expect these results to continue at least through the busy summer period.?

On Friday, US Airways said its total mainline traffic rose 7.4% in May, outpacing a 4.4% increase in seat capacity. The carrier?s load factor, or the percentage of available seats filled with passengers, rose to 85.2% from 82.9%, helping to lift unit revenue an estimated 11% from a year ago.

Delta said its May traffic rose 2.2%, matching a similar rise in capacity and keeping its load factor at 83.9%. Alaska Air reported a 11.7% jump in traffic on a 7.4% rise in capacity, lifting the load factor in May to 84.7% from 81.4%.

Neither Alaska Air nor Delta release unit revenue estimates, buy Maxim Group it will probably be in the high single-percentage digit area for both.

United Continental Holdings /quotes/zigman/617037/quotes/nls/ual UAL -3.23% and American Airlines are expected to report their May results later this week.
/quotes/zigman/1468713 Add XAL to portfolio XX:XAL NYSE Arca Airline Index 41.49 -0.75 -1.78% Volume: 0.00June 6, 2011 1:01p
/quotes/zigman/463579/quotes/nls/dal Add DAL to portfolio DAL Delta Air Lines Inc. $ 9.37 -0.25 -2.60% Volume: 6.97mJune 6, 2011 1:01p
/quotes/zigman/217884 Add AMR to portfolio AMR AMR Corp. $ 5.76 -0.20 -3.36% Volume: 4.97mJune 6, 2011 12:46p
/quotes/zigman/410380 Add TAM to portfolio TAM TAM S/A ADS $ 21.65 -0.58 -2.61% Volume: 203,222June 6, 2011 12:45p
/quotes/zigman/390962/quotes/nls/lcc Add LCC to portfolio LCC US Airways Group Inc. $ 8.64 -0.25 -2.81% Volume: 2.98mJune 6, 2011 1:00p
/quotes/zigman/216861 Add ALK to portfolio ALK Alaska Air Group Inc. $ 63.38 -0.57 -0.89% Volume: 99,049June 6, 2011 12:44p
/quotes/zigman/617037/quotes/nls/ual Add UAL to portfolio UAL United Continental Holdings Inc. $ 22.00 -0.74 -3.23% Volume: 3.81mJune 6, 2011 1:00p
Christopher Hinton is a reporter for MarketWatch based in New York.