The
International Air Transport Association this week revised upward its financial
outlook for the global airline industry. Despite sluggish GDP growth and high
fuel prices, carriers are improving their footing by realizing strong passenger
traffic gains and yield improvements and creating "economies of scale"
through alliances and joint ventures. Business travel in particular, according
to the association, has been "supported by more robust international trade
in goods and service."
IATA
also noted that airline bankruptcies and "a sharp fall in the number of
new entrants" due to a lack of funding have "contributed to an
improved industry structure which has allowed airlines to share efficiency
gains between improved service for passengers and better returns for investors."
The
association now projects the world's airlines in aggregate to post a 2012 net
profit of $6.7 billion, up from the $4.1 billion forecast it issued in
October. That still would be well below the $8.8 billion profit IATA recorded
for global airlines in 2011. For 2013, the revised forecast calls for a global
net profit of $8.4 billion, up from the previous prediction of $7.5 billion.
The
2013 improvements would be driven by moderating fuel prices and a projected 4.5
percent increase in passenger demand.
"It
is good that we are moving in the right direction, but the year ahead is
shaping up to be another tough one for the industry," according to IATA
director general Tony Tyler's prepared remarks during a media briefing in
Geneva on Wednesday. "Let's keep the figures in perspective. After taking
in an expected $637 billion in revenues, a net profit of $6.7 billion is a net
profit margin of 1 percent. And $8.4 billion on expected revenues of $659
billion in 2013 will mean a net profit margin of 1.3 percent. The industry is
keeping its head above water. But only just."
North America To
Generate 'Largest Absolute Profit'
IATA
now projects North American airlines this year to post an aggregate $2.4
billion net profit, up from $1.7 billion in 2011, owing to "improved asset
utilization as a result of recent industry consolidation." The association
noted that the 3.4 percent forecast for the region's 2012 earnings before interest
and taxes margin "is the strongest among regions."
For
2013, IATA projected that North American airlines would post a combined net
profit of $3.4 billion, "the largest absolute profit among the regions. The
U.S. economy is forecast to be the strongest-growing among the developed
economies and further benefits are expected from earlier consolidation."
IATA
expects European airlines this year to break even overall, marking a $400
million deterioration from actual 2011 results but a $1.2 billion improvement
from the October forecast. IATA cited "efficiency programs and stronger
traffic growth." However, IATA cautioned that "the continent's
carriers remain in the weakest financial position. EBIT margins are expected to
be 0.6 percent, and with expected break-even performance Europe stands with
Africa as the only two regions not delivering profit." For 2013, IATA now
forecasts European carriers to again break even.
For
Asia/Pacific airlines, IATA's new 2012 projection is an overall $3 billion net
profit—the largest of any region and up $700 million from the previous
forecast, but down from $5.4 billion last year. IATA cited "slower
economic growth in China" for the declining profit. But next year, the
region's airlines will tack on another $200 million in profits, according to
IATA.
IATA
also revised upward by $100 million its profit projection for Middle East
carriers this year, to $800 million, down from the $1 billion recorded in 2011.
"While the region is maintaining strong growth with long-haul connection
traffic, its performance has been weakened by the Arab Spring and lingering
instability," according to the association. The forecast for 2013 calls
for a $1.1 billion combined profit across the region as carriers "continue
to expand their share of international markets."
The
Latin America 2012 profit forecast was left unchanged at $400 million. "Along
with North America, it is the only region to see an improvement on 2011, when
the region's carriers posted a profit of $300 million," IATA wrote. "This
is partly driven by the region's more robust trade and economies and partly by
the consolidation that has started to reverse the losses seen in Brazil."
Those trends will help push aggregate 2013 profits to $700 million, according
to IATA.
The
2012 projection for Africa is an overall break-even result, which would be
about the same as the previous forecast for this year, actual results from 2011
and IATA's new 2013 profit projection for the region. IATA explained that
"while the continent's economy is expanding rapidly, its carriers are
suffering from strong competition on long-haul routes, high cost structures and
a regulatory regime that inhibits the development of intra-Africa links."