Global airlines bullish on higher profits, but emissions row threatens to derail it

Global airlines are gathering for an industry summit in Cape Town boosted by weaker fuel prices, but facing a tough debate over how to share the cost of tackling emissions involved in a trade row.

The International Air Transport Association, which represents 240 carriers, is holding its annual meeting against a backdrop of higher traffic and cheaper energy that could lift airline profits and unperpin hopes of economic recovery.

Tony Tyler, IATA’s director general, said ahead of the June 2-4 talks that airlines felt “modest signs of improvement” as traffic grows sharply in emerging markets, offsetting Europe’s debt crisis and a hesitant pick-up in North America.

North Sea Brent crude prices have fallen from a peak of $118 per barrel earlier this year to $100, raising the prospect that IATA will hike its influential profit forecast as airline chiefs meet in Cape Town. Fuel accounts for a third of airline costs.

IATA currently predicts an industry profit of $10.6 billion in 2013 and Tyler said Monday’s update would set a “cautiously optimistic” tone for the meeting of 700 aviation executives.

An 18-month slump in cargo showed signs of stabilizing in April. In North America, airlines have managed to keep capacity in check, keeping planes full and ticket prices up.

“The economy has been OK but not robust. Usually (airline) prices ebb and flow with oil and now we see they have some ability to maintain their pricing power,” said Basili Alukos, an airlines analyst with Morningstar, based in Chicago.

Overshadowing the discussions will be lingering fears of a trade war as governments remain deadlocked over fuel emissions.

The European Union has pledged to re-introduce a controversial emissions trading scheme opposed by a group of other countries unless everyone can agree on a global system.

But little progress has been made in a United Nations effort to craft an agreement to lower emissions from international air travel, raising doubts that a September target date can be met.

Failure to agree has given the airline industry itself a slim window of opportunity to forge a common position and seize the initiative before the UN’s aviation body meets in September.

But airlines are seen as split over who should pay the most if the world does manage to come up with a market-based scheme for taxing emissions deemed harmful to the environment.

Airlines in the Gulf and Asia are growing at a much faster pace than those in mature European and North American markets.

One of the industry’s most sensitive topics is whether the whole industry should underwrite its goal of carbon-neutral growth or whether those growing the most should also pay the most.

IATA has said it will seek the “fairest possible agreement” at its annual summit and is urging airlines to compromise or see their fate controlled by a jumble of uncoordinated policies. (Additional reporting by Nivedita Bhattacharjee. Editing by Gunna Dickson)