IATA lowered its global airline earnings forecast for 2012 to a net profit of $3.5 billion, 28.6% below its previous forecast, and warned of a possible net loss of $8.3 billion if the Eurozone crisis deteriorates into a renewed banking crisis and worldwide GDP growth slows to 0.8%.

In its previous forecast in September, IATA still expected the world's airlines to post a profit of $4.9 billion next year (ATW Daily News, Sept. 21).

"The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion—the largest since the 2008 financial crisis," IATA DG and CEO Tony Tyler told reporters at IATA's Global Media Day in Geneva.

In this worst-case scenario, all regions would fall into losses. Europe would be expected to post the deepest loss 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, respectively, while Africa would be $200 million in the red.

Tyler said, "This admittedly worst-case—but by no means unimaginable—scenario should serve as a wake-up call to governments around the world. Government policies need to recognize aviation’s vital contribution to the health of the economy."

He added, "Even our best-case scenario for 2012 [the predicted $3.5 billion profit] is for a net margin of just 0.6% on revenues of $618 billion. But the industry is really moving at two speeds, with highly taxed European carriers headed into the red."

Under IATA's forecast, European carriers are expected to fall to a $600 million loss in 2012 resulting from the weakness of their home market economies and further increases in passenger taxes, while North American carriers are expected to generate profits of $1.7 billion as limited capacity growth is providing some protection against the downward pressure on profits.

Asia/Pacific carriers are forecast to deliver the largest absolute profit at $2.1 billion. Middle East carriers will see their earnings decrease to $300 million, less than half the previously forecast $700 million profit, as long-haul market conditions deteriorate—in  particular those linked to the weak European economies. Latin American carriers will see profits decline to $100 million—a $400 million negative swing from the previous forecast, partly a carry-over from the recent weakness of profitability in the large Brazilian market. African carriers will fall to a loss of $100 million, unchanged from the previous forecast.

On a more positive note, IATA kept its net profit outlook for this year unchanged at $6.9 billion, which equates to a net margin of 1.2%, but regional differences have widened. Airlines in Europe, the Middle East Airlines and Latin America had their forecast downgraded to $1 billion (down from the previously forecast $1.4 billion), $400 million (down from the previously forecast $800 million) and $200 million (from the previously forecast $600 million), respectively. 

Conversely, carriers in North America and the Asia/Pacific region had their 2011 profitability outlook raised. African carriers are still expected to breakeven.

Passenger demand for the full year is expected to expand by 6.1% globally—which is stronger than the 5.9% forecast in September—and yields to increase by 4%. IATA is forecasting global airline revenue of $596 billion in 2011.