IATA says global airline profits will fall by 29% in 2012 to $4.9 billion
IATA says the industry’s earnings are likely to fall to $4.9bn in 2012, from $6.9bn this year. Since it expects revenues to increase, this is mainly due to rising costs. It expects European carriers’ profits to drop by 80% to $300m due to the debt crisis. Profit forecasts for 2011 are now higher than they were, as the number travelling rises and in the period Jan-July, the global passenger number was up by 6.4% over that period in 2010, with an increaes of 5.9% growth for 2011 (up from 4.4% projected in June). Profitability at 1.2% net margin or less. The overall industry outlook is weaker in 2012.
Airlines profits to drop 29% in 2012, global body says
Profits at airlines will drop by almost a third next year, according to a global
airline body. The International Air Transport Association said the industry’s earnings will
likely fall to $4.9bn (£3.1bn) in 2012, from $6.9bn this year. [Compare similar story below from 2007]
Since it expects revenues to increase, this is mainly due to rising costs.
IATA said profits for European carriers wil drop by 80% to $300m as the debt
crisis saps demand.
The forecast [profit] for this year, of $6.9bn, is higher than it predicted in June, when
it said it expected $4bn for 2011.
“Why are we doing better than previously expected? It’s about travel volumes,”
chief executive Tony Tyler said.
“Despite the economic doom and gloom, people are travelling.”
In the seven months to July, passenger volumes were up 6.4% over the previous
year, but cargo was hardly changed as world trade stalled.
IATA press release 20.9.2011
Weak Economy, Weak Profits – 2012 Looking Even Tougher
Singapore – The International Air Transport Association (IATA) announced an upgrading
of its industry profit expectations to $6.9 billion (up from $4.0 billion projected
in June). IATA emphasized that, despite the improvements, profitability at these
levels is still exceptionally weak (1.2% net margin) considering the industry’s
total revenues of $594 billion.
In its first look at 2012, IATA is projecting profits to fall to $4.9 billion
on revenues of $632 billion for a net margin of just 0.8%.
“Airlines are going to make a little more money in 2011 than we thought. That is good news. Given the strong headwinds of high oil prices and economic
uncertainty, remaining in the black is a great achievement,” said Tony Tyler,
IATA’s Director General and CEO. “But we should keep the improvement in perspective.
The $2.9 billion bottom line improvement is equal to about a half a percent of
revenue. And the margin is a paltry 1.2%. Airlines are competing in a very tough
environment. And 2012 will be even more difficult,” said Tyler.
IATA’s forecast is built around global projected GDP growth of 2.5% in 2011 falling
to 2.4% in 2012. Airline financial performance is closely linked to the health of world economies.
Whenever GDP growth has slowed below 2.0% the airline industry has lost money..
“We will be perilously close to that level at least through 2012. The industry
is brittle. Any shock has the potential to put us in the red,” said Tyler.
Forecast Highlights for 2011
Passenger: Passenger demand has been stronger than anticipated given the gloomy economic
outlook. The forecast for the year stands at 5.9% growth (up from 4.4% projected in June).
In the year to July, passenger volumes were up over 6% on previous levels. This
would bring total passenger numbers to 2.833 billion (up from the previous forecast
of 2.793 billion). World trade basically stopped growing at the end of 2010. The
strong travel trend in 2011 is built on residual confidence from economic optimism
at the beginning of the year. While some economies may be more durable—China for
example—the overall outlook is for a weaker end to 2011.
Freight: Air freight has stagnated since the start of the year. IATA slashed its full-year volume growth projection from 5.5% to 1.4%. Airlines
are expected to carry 46.4 million tonnes of cargo in 2011 (down from the previous
forecast of 48.2 million). Air freight volumes reached their post-recession peak
in May 2010, largely driven by re-stocking. July’s traffic was 4% lower than
that level. It appears unlikely that a revival in air freight will begin before
Asset Utilization: Airlines managed to restore passenger load factors back to the 2010 highs.
By July the global passenger load factor stood at 83.1%. Airlines met the better
than expected passenger demand with more intense asset utilization. As much of
this capacity also came with belly space for cargo, the freight load factor sank
to 45.0% by July.
Yields: Tighter supply and demand conditions in passenger markets over the first half
of the year are expected to offset the impact of a weaker second half. As a result
our passenger yield growth projection is unchanged at 3.0%. However, an oversupply
of belly cargo capacity is expected to see no improvement in freight yields in
2011 (down from our previous projection of 4.0% growth).
Revenues: Industry revenue projections are relatively unchanged. Stronger passenger markets
will see passenger revenues rise to $464 billion (up $7 billion from the June
forecast). Meanwhile, weaker freight markets will see freight revenue projections
fall to $67 billion (down $5 billion compared to the June forecast).
Fuel: Oil prices have remained consistent with the previous forecast of $110/barrel
(Brent Crude). This is 39% higher than the $79.4 average price of 2010. A total
fuel bill of $176 billion is expected to account for 30% of industry costs.
North American carriers are expected to deliver a net profit of $1.5 billion (+$300 million compared
to the June forecast). The weak US economy continues to put a damper on the potential
for profitability improvements. The region’s EBIT margin of 3.0% of revenues ranks
second to Latin America (at 3.4%).
European carriers gained the most from the stronger than expected traffic. This is fueled by the
weak Euro which has encouraged inbound tourism and provided a boost to export
markets. The region’s carriers are expected to deliver a profit of $1.4 billion
(+$900 million compared to the June forecast). The region’s continuing challenges
are clearly seen in the projected EBIT [Earnings Before net Interest and Tax ] margin of 1.5%, the weakest outside of Africa.
Asia Pacific carriers are expected to return a $2.5 billion profit in 2011 (+$400 million on the June
forecast). While this is the largest absolute profit, the region has also seen
the most dramatic downturn compared to 2010 when the region delivered $8 billion
profit. The weakness of air cargo markets is disproportionately affecting airlines
from this region owing to the larger share of cargo in airline revenues. The shocks
from the Japanese earthquake and tsunami continue to affect supply chains and
cargo markets (in which Asia Pacific carriers have the largest market share).
A strong rebound is expected late in the year continuing into 2012.
Middle East carriers are the second largest beneficiary of the better than expected passenger demand.
The region’s carriers are expected to make $800 million, up from the $100 million
projected in June. Holding up against potential demand shocks associated with
political instability, the region’s carriers grew passenger traffic 8.3% compared
to a capacity increase of 9.0% in the first seven months of this year. An EBIT
margin of 3.0% is projected.
Latin American carriers are expecting profits of $600 million (up from the $100 million projected in
June) and an EBIT margin of 3.4% (the strongest among regions). The continent
continues to benefit from very strong economic growth partly due to commodity
exports to China and North America.
African carriers are expected to break even, from a $100 million loss previously forecast. While
parts of the continent’s economy continue to grow robustly, the challenges of
political unrest in North Africa continue to severely dent traffic and overall
performance. An EBIT margin of 0.7% is the weakest among the regions.
Looking at 2012
The overall industry outlook grows weaker in 2012. Debt-burdened Western economies look set for an extended period of weak economic
growth—or worse. While developing economies look to be in much better shape, the
prospects for industry growth are limited because many transport linkages are
with developed nations. The fourth quarter of 2011 and the first half of 2012
may well see the weakest point for air transport markets.
The industry forecast of a $4.9 billion profit is based on:
- Passenger markets that will grow by 4.6% (slower than the 5.9% projected for 2011), but with yield
growth falling to 1.7% (about half the 3.0% growth expected in 2011).
- Cargo markets that will grow at 4.2% (three times the 1.4% growth of 2011), but with no growth
- Fuel prices are expected to fall slightly based on a crude oil price of $100 per barrel (less
than the $110 price expected for 2011). But due to the effects of fuel hedging
delaying the benefits of lower spot prices, the fuel bill will grow to 32% of
airline costs (up from 30% in 2011) with a total bill of $201 billion.
“It looks like we are headed for another year in the doldrums. With business
confidence declining, it is difficult to see any potential for significant profitable
growth. Relatively stronger economic growth and some rebound in cargo will help
Asia Pacific airlines to maintain their 2012 profits close to 2011 levels at $2.3
billion. The rest of the industry will see declining profitability. And the worst
hit is expected to be Europe where the economic crisis means the industry is only
expected to return a combined profit of $300 million. A long slow struggle lies
ahead,” said Tyler.
“As governments seek to re-start troubled economies, a strategic approach to
aviation policy would deliver broad economic benefits. Every plane that takes
off is a catalyst for economic growth and prosperity. Governments must carefully
evaluate the negative impact of the current high levels of taxation, absolutely
resist increases or new taxes, and develop policies that support aviation’s growth
with efficient infrastructure. Time and again aviation has shown its resilience.
People need and want to travel. Now is the time to harness the economic possibilities
that this presents,” said Tyler.
see also an old article from 4 years back
Airlines say credit crunch will put £1bn dent in profits
The credit crunch has reduced profit estimates for the global airline sector
by nearly $2bn ( £1bn), amid fears that the crisis will curb a long-term industry
revival. The International Air Transport Association slashed its profit forecast
for 2008 by 19% to $9.6bn, saying the downturn in the credit market would affect
airline balance sheets regardless of whether the global economy has a hard or
soft landing next year.
“Either we get hit with higher costs or we get hit with lower demand,” said an
The trade body said it expected profits for 2007 to be higher than forecast at
$5.6bn, against $5.1bn previously. Iata said profitability was most robust in
North America, where carriers have increased capacity by 11% and improved their
load factors – a measure of how full planes are – by 6%.
In the Asia Pacific region, however, growth has been more one-sided with capacity
increasing by 42% and load factors rising 2%, contributing to a decline in profits
from $1.2bn in 2005 to $700m this year.
“The Iata forecast is not a surprise because the mood music is pretty appalling,”
said Chris Tarry, an airline industry analyst. “Consumer spending is coming under
greater pressure, there is too much capacity in the market, and fares will have
to come down. I think 2008 will be the peak of the profit cycle.”
One of the expected beneficiaries of the Open Skies agreement, Silverjet, yesterday
said it was confident the credit market paralysis would not affect its fledgling
business. The all-business-class airline said it would benefit from companies
clamping down on travel costs.