IATA: North America To Lead Global Airline Financial Performance - Business Travel News

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IATA: North America To Lead Global Airline Financial Performance

December 13, 2012 - 10:35 AM ET

By David Jonas

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." 

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