IATA sees softer airline profit fall but another cargo drop in 2012

The world’s airlines will suffer a softer than previously forecast fall in profits this year dueto improved passenger traffic but cargo volumes will drop back 0.4% this year rather than grow

Overall profits and margins will remain weak, the world airline association predicted. Airlinesare now expected to earn $4.1 billion in combined total profits in 2012, which is up $1.1 billionfrom the $3 billion forecast in June. But this is still a sharp drop on the $8.4 billion that theindustry earned in 2011. This will leave the industry’s net profit margin at 0.6% compared to 1.4%last year.

The main reason for the slight improvement in this year’s outlook is that the passenger markethas performed well in the face of weak business confidence in Western economies. Demand is expectedto grow by 5.3% over the course of 2012, which is 0.5 percentage points better than was foreseen inJune, and ahead of capacity growth, resulting in better passenger load factors and higheryields.

Tony Tyler, IATA’s Director General and CEO, praised the industry for coping with low growth andhigher fuel costs by keeping capacity tight and enabling better yields in the passengerbusiness.

Cargo remains in the doldrums, however. IATA now predicts a 0.4% contraction in demand this yearrather than the slight 0.3% growth that was predicted in June. For the first eight months of theyear, cargo capacity grew by 3.0 percentage points ahead of demand, and the weaker supply/demandenvironment has led to a more pessimistic outlook for cargo yields which are expected to decline 2%this year rather than remain stable at 2011 levels, as IATA previously expected.

Looking ahead to 2013, IATA said its initial forecast is for a 2.4% rise in cargo traffic drivenby stronger world GDP growth of 2.5% and a 5.1% rise in world trade. But airlines could see afurther 1.5% drop in cargo yields, resulting in flat cargo revenues. Asian and Middle East carriersare expected to be the main winners from this scenario.

In overall terms, IATA estimates industry profits rising to $7.5 billion next year as economicforecasts point to slightly stronger economic growth and lower oil prices. This would be betterthan 2012 but the airline industry’s profit margin would still only be 1.1%.

Looking at historic trends, IATA figures show dramatic fluctuation in worldwide air cargotraffic over the last ten years, with mid-single-digit growth in the first half of the decade,followed by the slump of 2008 (-1%) and 2009 (-9.8%), the strong recovery of 2010 (+18.7%) and theweak performance last year, with a 0.7% decline. A 0.4% drop this year followed by 2.4% growth in2013 would thus continue this up-and-down trend, leaving global air cargo revenues broadly flatsince 2010.