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Airlines raise profit forecasts for 2012

Despite recent gloomy forecasts and a weak global economy, new profit forecasts are on the rise, according to the International Air Transport Associat...

Freddie Pierce
|Oct 1|magazine7 min read

 

Despite recent gloomy forecasts and a weak global economy, new profit forecasts are on the rise, according to the International Air Transport Association (IATA).

IATA, which represents around 80 percent of global carriers, expects the $630 billion airline industry to make a net profit of $4.1 billion this year, over $1 billion more than an earlier forecast of $3 billion.

The forecast is still less than half of last year’s total profits of $8.4 billion, reflecting the global air freight downturn this year, however IATA expects an improvement in 2013, when industry profits are forecasted to rise to $7.5 billion, helped by a 2.4 percent rise  in air cargo plus a 4.5 percent expansion in passenger traffic.

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According to the association, profit margins in 2013 will remain extremely low at 1.1 percent in 2013, versus an even lower 0.6 percent in 2012,.

Improved airline performance was evident in second quarter results, which showed operating profits close to those of the previous year, following a tough first quarter. The evidence is showing that consolidation is producing positive results.

In past cycles passenger load factors and aircraft utilization would have fallen by this stage, in the face of slowing demand and increasing aircraft deliveries. 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.

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 Tony Tyler, Director General and CEO of IATA.

“Aviation has an important role to play as the global economy struggles. Growth is the only way forward and a healthy aviation industry can stimulate that—linking stagnating developed economies to robust emerging markets. Aviation connectivity spurs growth at both ends. That is why it is important for governments to ensure aviation’s ability to be a catalyst for growth is not constrained

Globally, aviation supports 57 million jobs and $2.2 trillion in economic activity.