The International Air Transport Association (IATA) yesterday raised its forecast for airline earnings this year to a record US$15.1 billion as economic conditions improved, but warned that profits would slide next year.
The forecast profit marked a significant step up from the previous figure of US$8.9 billion in earnings expected this year.
Two-thirds of this year’s expected profits were generated in the second quarter, the air industry association said.
It signaled more turbulence for airlines next year with profits dropping back to US$9.1 billion.
“The recovery cycle will pause in 2011,” director general Giovanni Bisignani said. “Although the US$9.1 billion profit projection for 2011 is better than we had -previously forecast, next year the industry will face tougher conditions than what we are experiencing today.”
Fuel prices are expected to average US$84 per barrel next year, up from US$79 this year. In addition, an ongoing debt crisis in Europe is expected to stifle growth in industrialized markets.
“A number of European economies are in very serious problems,” IATA chief economist Brian Pearce said.
“We think there will be further [spending] cuts by governments which will further depress economic growth,” he said. “We’re going to see slower economic growth in Europe. Clearly that’s going to make it a more challenging environment to grow revenues.”
Profits for the region’s carriers are estimated at just US$100 -million next year.
“Europe is really the sick region of the world — not just sick in aviation; it’s sick in the system,” Bisignani said.
Growth is largely going to come from fast-growing Asia, which will post more than half of this year’s profit at US$7.7 billion.
“This is the largest absolute profit ever for this region. The power of China is driving this forward,” Bisignani said.
Asia is also forecast to post US$4.6 billion in earnings next year, half of next year’s profit.
Bisignani said that the economic crisis has accelerated the shift of the “industry’s center of gravity to the East.”
At US$20 billion, Air China is now the largest airline in the world by market capitalization, the IATA chief said. Singapore Airlines is next with US$14 billion, followed by Hong Kong’s Cathay Pacific at US$12 billion.
Delta and Lufthansa are worth US$10 billion each by market -capitalization, Bisignani said.
“Traditionally intra-North America traffic was our largest market. In 2009, 655 million [passengers] traveled within North America and 662 million within Asia,” he said.
By 2014, IATA sees 800 million more people traveling, including 360 million who will be flying within the Asia Pacific region.
“The majority of growth over the next few years is going to be within the region. We’re seeing a fast expansion of the middle classes,” Pearce said.
Despite the strong profits, Bisignani said it had to be “put into perspective.”
“Our [profit] margins are still pathetic,” he said, pointing out that margins next year would be just 2.7 percent.
“If airlines were charity organizations, this would be a great result. As a business, it clearly shows that we remain a sick industry. We are not even recovering half the cost of capital which is 7 to 8 percent,” he said.
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