Airline profits to rise in 2013

Airline profits to rise in 2013

The International Air Transport Association (IATA) has forecast that the world’s airlines will recover in 2013, generating profits of US$7.5 billion.

The aviation body also revised its global airline profit forecast for 2012, raising the expected income of the world’s carriers to US$4.1bn, from the US$3bn predicted in June. Both the revised 2012 figure and early 2013 prediction however, remain below the US$8.4bn profits generated in 2011, and margins remain thin, at just 0.6% this year and 1.1% next.

Airlines profits will rise to US$7.5bn next year
Airlines profits will rise to US$7.5bn next year

“The European sovereign debt crisis lingers on. China continues to moderate its growth. And the impact of recent quantitative easing in Japan and the US will take time to yield growth. While some of these risks have diminished slightly over recent months, they continue to take their toll on business confidence. The outlook improvement is due to airlines performing better in a difficult environment,” said Tony Tyler, IATA’s Director General & CEO.

IATA said its positive upgrade for 2012 followed improved second quarter results, with operating profits close to those of the previous year. The association noted that industry consolidation is “producing positive results”, with airlines able to keep load factors high despite softening demand.

“Even six years ago, generating a profit with oil at US$110 per barrel would have been unthinkable. The industry has reshaped 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.

IATA noted that despite fluctuating oil prices, jet fuel prices have increased by US$1.20 per barrel since the June forecast, to US$127.70. This will add US$1bn to the industry fuel bill, taking the total to US$208bn for the year.

By region, European airlines are expected to post the largest loss of any region at US$1.2bn (US$100m worse than previously forecast), following a slowdown in the premium markets, but the profit forecast for North American carriers has risen US$500m to US$1.9bn, largely due to tight capacity management.

Asia Pacific airlines are set to post a US$2.3bn profit for the year, US$300m better than previously forecast, while in the Middle East airlines’ profits are expected to hit US$700m – up from the previous forecast of US$400m. Latin American airlines are expected to post profits of US$400m, making it the only region to improve on 2011, while African airlines are now expected to break even in 2012 – up from the US$100m loss previously forecast.

Regional variations will persist in 2013, with North American airlines expected to improve and Asia Pacific carriers being boosting by improved cargo volumes. 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.

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