When Even Good News Is Bad

June 19, 2012
It doesn't really matter if you want to hear the good news or the bad news first.

If every cloud has a silver lining, please blow some our way. Even good news seems to bring more bad for the airline industry.

First, the good news: Fuel prices are down some 8 percent to date this year.

Now, the bad news: Prices are down as a result of a worldwide slump in economic activity.

“The reduction in fuel prices is a great thing for the airline industry, but they are coming down because of concerns over world economic activity,” IATA chief Tony Tyler told Reuters at the group’s recent annual summit in China. “If the world enters an economic slump, that will be even worse for the industry than the higher fuel price on its own.”

The United States is just hanging on. High-flying China is experiencing its first economic pinch. But the real basket case is Europe. IATA recently updated its forecast that almost doubles how much European airlines were expected to lose this year – that is before the “good” news of drop in fuel prices.

Overall, the revenue picture for the global industry remains unchanged, but IATA expects everyone to make do with pennies in profits.

“Demand has been better than expected so far this year,” Tyler went on to say in a speech at the summit. “And fuel prices are lower than previously anticipated, but that’s on the expectation of economic weakness ahead. The euro-zone crisis is standing in the way of improved profitability and we continue to face the prospect of a net profit margin of just 0.5 percent.”