Tue, Oct 02, 2012 - Page 15 News List

IATA raises airline profit estimates

‘KNIFE-EDGE’:The group revised up its global airline profit forecast by 37 percent for this year, but warned that profit margins still do not cover the cost of capital


Employees inspect a Thai Airways International plane at Suvarnabhumi Airport in Bangkok, Thailand, on Saturday. Thai Airways received its first Airbus A380 superjumbo, boosting efforts to compete with Singapore Airlines and Emirates for lucrative corporate travelers.

Photo: Bloomberg

The International Air Transport Association (IATA) raised its global airline profit forecast for this year by 37 percent, as carriers slow capacity growth to cope with higher fuel prices and waning travel demand.

Carriers may post US$4.1 billion of profits this year with a margin of 0.6 percent, the group, whose members account for 84 percent of global airline traffic, said in a statement yesterday. That compares with a June forecast for gains of US$3 billion and a profit of US$8.4 billion last year.

The group raised its forecast as airlines reported improved earnings in the second quarter, it said. Delta Air Lines Inc and US Airways Group Inc beat analysts’ profit estimates, while Singapore Airlines Ltd posted its first increase in net income in seven quarters.

“The industry has re-shaped itself to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating,” IATA chief executive officer Tony Tyler said in the statement. “The industry’s profitability still balances on a knife-edge, with profit margins that do not cover the cost of capital.”

The group expects carriers’ earnings to rise to US$7.5 billion next year on US$660 billion in sales, based on global GDP growth of 2.5 percent.

European airlines are expected to post a loss of US$1.2 billion this year, compared with a previous forecast of US$1.1 billion, as a sovereign-debt crisis causes the 17-nation euro region’s economy to contract. The region is also “plagued by high taxes, inefficient air traffic management infrastructure and an onerous regulatory environment,” IATA said.

European airlines are expected to post a loss next year as well, the only region to lose money, IATA said.

North American airline earnings will be US$1.9 billion, compared with the earlier prediction of US$1.4 billion, while Latin American carriers will have a surplus of US$0.4 billion. They are the only two regions with an expected improvement in profitability over last year, IATA said.

Asia-Pacific carriers will post a total profit of US$2.3 billion, better than the June forecast of US$2 billion, as easing cargo demand is offset by relatively robust performance in passenger markets, IATA said. China’s domestic market expanded by 9.4 percent in this year through August, the association said.

Jet fuel price increases will add US$1 billion to the industry’s fuel bill, bringing a US$208 billion cost for this year. IATA forecasts crude oil prices to average US$110 per barrel for the year.

IATA said global passenger demand may rise 5.3 percent this year, revising its June prediction of 4.8 percent. Demand will expand 4.5 percent next year, it said.

Air freight is expected to contract 0.4 percent this year, compared with a 0.3 percent expansion predicted in June. Cargo yields are expected to average 2 percent lower than last year’s levels, the association said.

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