Global airline profit forecast raised by IATA
IATA predicts world aviation industry will make a profit of $4.1 in 2012 compared to the $8.4 billion it made in 2011, and the $7.5 bn it expects to make in 2013. They have increased the size of the profit that the $630 billion global airline industry will make this year from its earlier estimate of $3 billion, up to $4.1 billion. The increase is due to expected efficiencies and consolidation. They are expecting the price of jet fuel to be lower next year – it has beem rising steadily for the past 4 months. IATA expects an increase in global air passengers of 4.5% in 2013 and an increase in ar cargo of 2.4% above the 2012 level, on 2.5% world economic growth. IATA say the global aviation industry makes a very tiny profit margin, of only about 0.6% for all of 2012, but rising to 1.1% profit margin in 2013. European airlines, hit particularly hard by the continuing debt crisis, were in line to make a loss of $1.2bn this year, compared to profits by North American and Asia Pacific airlines.
The International Air Transport Association (Iata) has raised its profits forecast for global airlines in 2012 by a third to $4.1bn (£2.5bn), due to efficiencies and consolidation.
This is still well below the $8.4bn in profits airlines made last year.
But the body said profits remained “on a knife-edge” as margins remained low.
Next year, a stronger global economy, higher passenger numbers and lower fuel costs would help drive profits back up to $7.5bn, Iata predicted.
“The industry has re-shaped itself to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating,” said Tony Tyler, Iata’s director general.
“But despite these efforts, the industry’s profitability still balances on a knife-edge, with profit margins that do not cover the cost of capital.”
Margins were likely to be 0.6% this year, before rising to 1.1% in 2013, Iata forecast.
Asia-Pacific airlines were on course to make $2.3bn, while North American carriers were set to report profits of $1.9bn, it added.
European airlines, hit particularly hard by the continuing debt crisis, were in line to make a loss of $1.2bn.
Iata represents 240 airlines accounting for more than 80% of global traffic.
IATA raises profit outlook for world’s airlines
The association, which represents about 80% of global carriers, now expects the $630 billion airline industry to make a net profit of $4.1 billion this year, up from an earlier forecast of $3 billion but still less than half the $8.4 billion achieved in 2011.
The IATA also said in its first forecast for 2013 that industry profits will rise next year to $7.5 billion, helped by passenger traffic expansion of 4.5 percent and cargo expansion of 2.4 percent as global economic growth quickens to 2.5% from an expected 2.1% this year.
Profit margins will remain razor-thin at 1.1 percent in 2013 versus an expected 0.6 percent in 2012, the association added.
[The IATA press release is at Press release 1st October 2012 ].
A few excerpts from the IATA press release:
In the current cycle airlines have kept both load factors and aircraft utilization high. This has allowed yields to improve and spread fixed costs more widely. However, asset utilization has fallen in the weaker cargo market, adversely affecting Asia-Pacific airlines in particular, where this business makes up a larger share of total revenues.
“Even six years ago, generating a profit with oil at $110/barrel (Brent) would have been unthinkable. The industry has re-shaped itself to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating. But despite these efforts, the industry’s profitability still balances on a knife-edge, with profit margins that do not cover the cost of capital,” said Tyler.
Globally, aviation supports some 57 million jobs and $2.2 trillion in economic activity. [ !! – with no back up to prove those figures]
Europe: European airlines are expected to post the largest loss of any region at $1.2 billion ($0.1 billion worse than previously forecast). While governments and the ECB have taken measures to shore-up confidence in the Euro, these have been fraught with political difficulties. European carriers have seen moderate traffic growth but an indication of the difficult trading conditions can be seen in the premium travel market. In July, the important North Atlantic premium travel market was 2.4% below previous year levels and premium travel within Europe was down 3.5%. Additionally, the region is plagued by high taxes, inefficient air traffic management infrastructure and an onerous regulatory environment.
Oil Prices: Over the last three months, oil prices have been volatile, declining to below $90/barrel (Brent) in June and then peaking around $115 in late August. Overall, the forecast remains for an average oil price of $110/barrel for the year. Jet fuel prices, however, have increased by $1.20/barrel (in the June forecast) to $127.70. This will add $1 billion to the industry fuel bill, bringing an anticipated $208 billion cost for the year.
In its first look at 2013, IATA estimates industry profits rising to $7.5 billion, as economic forecasts point to slightly stronger economic growth and lower oil prices. That’s a better result than 2012 but with a profit margin of only 1.1% of revenues it still represents a return on capital far below other industries. The modest improvement is based on a forecast for global GDP of 2.5% growth (up from 2.1% in 2012). This will help fuel passenger traffic expansion of 4.5% and cargo expansion of 2.4%. Cargo markets, while expanding with strengthening world trade (which is forecast to grow at 5.1%, ahead of the 3.4% growth expected in 2012), will see yields fall by 1.5%. Passenger yields are expected to remain flat. Slightly lower oil prices ($105/barrel (Brent)) will be another driver of the improved performance. This will hold the industry’s fuel bill to $208 billion (the same as is expected for 2012) even when factoring-in industry growth. Meanwhile, revenues are expected to grow by $24 billion to $660 billion. While this will be a slower growth than the $39 billion expansion that is anticipated from 2011 to 2012, it is expected to lead to improved profitability owing to stable costs—particularly fuel.
Regional divergences will persist in 2013. North American airlines are expected to continue to improve profitability based on tight capacity management. Asia-Pacific carriers will see a profitability boost from improved cargo volumes (if not yields). European airlines are expected to be the only region in the red for 2013, although losses will be trimmed as a result of slower capacity growth and improved global trading conditions on long-haul markets.