Airline industry earnings that are forecast to reach a record this year on surging US gains mask margins too thin to provide any real resilience to economic setbacks, the International Air Transport Association (IATA) said.
Carriers will earn US$18 billion in combined net income this year, IATA chief executive officer Tony Tyler said yesterday at the group’s annual meeting in Qatar. That is US$700 million less than previously forecast and represents a margin of just 2.4 percent on projected sales of US$746 billion, or US$5.42 per passenger.
“We have seen consolidation and international cooperation between airlines assist in this movement upwards, but it’s still very vulnerable to any number of shocks,” Tyler said in an interview, adding that the historically unprofitable industry “can afford to be a little bit optimistic.”
Mergers — including the formation of American Airlines Group Inc out of AMR Corp and US Airways Group Inc — have seen three main network operators emerge in both the US and Europe, helping to rein in capacity and bolster fares.
At the same time, fuel prices remain high and airlines in the Gulf and Asia are ordering vast new wide-body fleets that require sustained global growth in order to avoid a glut of excess seats.
The forecast global profit for this year would represent a 70 percent increase on last year’s US$10.6 billion.
A surge in North American earnings underpins the expected improvement, with net profit forecast to reach US$9.2 billion, slightly more than 50 percent of the global total. The figure translates into a retained profit of US$11.09 per passenger, compared with only US$2.83 as recently as 2012.
Other regions will fare less well, with the forecast reflecting a “slight downgrade” from one for a US$18.7 billion profit issued in March amid slowing trade and a slide in business confidence tied to concerns over China, the IATA said.
“The level of profitability is on an upward path and that’s good, but it’s still very thin,” Tyler said in the interview.
Setbacks including an economic reversal, natural disaster, surge in fuel costs or outbreak of an epidemic could all erase profit, and while the industry is structurally stronger, margins still do not cover the 7 to 8 percent cost of capital, he said.
Gulf carriers such as Dubai-based Emirates and Qatar Airways Ltd, which is helping to host the IATA meeting, represent significant competition for more established airlines, though those companies can and will respond, he said.
Tyler said that while the industry is particularly exposed to China — both as a burgeoning travel market and driver for the global economy — his time leading Cathay Pacific Airways Ltd in Hong Kong gives him confidence in the country’s economic resilience.
“I don’t think we need to be too concerned about a hard landing,” he said. “I believe the government will manage its way through the current economic issues.”
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
RECORD-BREAKING: TSMC’s net profit last quarter beat market expectations by expanding 8.9% and it was the best first-quarter profit in the chipmaker’s history Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which counts Nvidia Corp as a key customer, yesterday said that artificial intelligence (AI) server chip revenue is set to more than double this year from last year amid rising demand. The chipmaker expects the growth momentum to continue in the next five years with an annual compound growth rate of 50 percent, TSMC chief executive officer C.C. Wei (魏哲家) told investors yesterday. By 2028, AI chips’ contribution to revenue would climb to about 20 percent from a percentage in the low teens, Wei said. “Almost all the AI innovators are working with TSMC to address the
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”