Airline price hikes could follow profit drop

8 June 2011

8 June 2011 | Lindsay Clark

Travel buyers have been warned of airline price rises after an announcement that the industry expects profits to fall by $4 billion (£2.4 billion).

At its annual general meeting this week, the International Air Transport Association (IATA) further downgraded its 2011 airline industry profit forecast by 54 per cent compared with the $8.6 billion (£5.2 billion) profit forecast in March. This represents a 78 per cent drop on the $18 billion (£11 billion) net profit recorded in 2010.

On expected revenues of $598 billion (£364.2 billion), a $4 billion (£2.4 billion) profit equates to a 0.7 per cent margin, IATA said. The Association said rising fuel prices were largely to blame.

Paul Tilstone, chief executive of the Institute of Travel and Meetings (ITM), which represents travel buyers, said that since the fuel surcharge was supposed to protect airlines from fuel hikes, buyers could expect to see those charges rise in the near future. “I suspect in some way or another that the fuel surcharge is going to be increased,” he said.

Tilstone said that research among ITM members showed that buyers expect to see prices rise by around 10 per cent in the medium term.

He warned that airlines strive to bypass procurement policy and travel management companies by adding ancillary services - such as fuel surcharges, chauffer services or airline lounges - directly to the bill of the business traveller. Buyers striving to mitigate price increases from airlines should try to capture this spend through credit card data or procurement policy and use it in price negotiations with suppliers. “Airlines want that relationship direct with the traveller… and the travel buyer wants to minimise that upsell as much as possible,” Tilstone said.

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