Airlines brace for financial turbulence

Oil above $110 a barrel will hurt.

According to Moody's Investors Service, despite still high fuel costs and the weak economic environment, the outlook for the global airline industry is stable, says Moody's Investors Service in its latest annual outlook "Global Airline Industry: Higher Fares, Capacity Discipline to Sustain Operating Profits Despite High Fuel Costs."

Here's more from Moody's:

"High fuel costs and jitters over the global economy will limit operating profit growth for the airline industry," said Jonathan Root, a Moody's Vice President -- Senior Credit Officer. "Still, North American and Middle Eastern carriers could see some modest profit improvement as European carriers struggle with a weak environment and Asian operators face intensifying competition."

Moody's industry outlooks reflect the rating agency's expectations for fundamental business conditions in the industry over the next 12 to 18 months.

Moody's does not expect increases in fares as long as key benchmark Brent crude oil remains below $110 per barrel. In addition, absent any increase in demand for air travel, there's little support to boost prices, says Moody's.

Slowing growth in passenger demand is likely as economic uncertainties weigh on business confidence and corporate travel budgets. Slowing growth in revenue passenger kilometers will be the norm into 2013, says Moody's.

The stable outlook also incorporates Moody's expectations that airlines—despite significant deliveries of new aircraft—will maintain capacity discipline with the majority of new planes replacing less fuel efficient models.