A sharp rise in the price of aviation fuel due to present political turnmoil in Egypt and fears of a domino effect on other oil-producing countries in the region is likely to trigger a hike in air fares.
"The recent sharp rise in fuel prices, at a time when load factors remain higher, will put further upward pressure on both fares and yields," an IATA report said.
The Middle East political turmoil has pushed the oil prices close to $ 100 a barrel and jet fuel to $ 113 a barrel, considerably higher than the $ 91 per barrel average for 2009.
"The story this month is the sharp rise in oil prices. We predicted that 2011 would see a consecutive second year of profitability but industry profits fell by 40 per cent to $ 9.1 billion. This was based on an oil price of $ 84 per barrel (Brent)," IATA Director General and CEO, Giovanni Bisignani said in a statement from Geneva.
Fuel accounts for 27 per cent of operating costs and a sustained rise in oil price could spoil the party. With uncertainties in the Middle East, oil prices are now hovering near the $ 100 per barrel mark. For every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional $ 1.6 billion in costs, said Bisignani.
The expected demand for oil in 2011 has been revised up by the IEA to a strong three per cent increase on 2010 but inventories and OPEC spare capacity remains high unlike the 2008 situation, it said.
The airline stocks, world over, has outperformed the market in 2010 with a 28 per cent rise in share prices through the year. Profits have continued to improve during the fourth quarter of 2010, despite a sharp rise in fuel prices, the IATA report said.
Yields had risen, providing some offset to fuel costs as load factors remain near record highs at 78 per cent.
IATA has predicted that though traffic volumes have slowed sharply recently still, after the strong 2010 rebound, the trend of growth is expected.