IATA today predicted low profits for the world’s airlines this year based on improving passengernumbers, flat cargo volumes and big downside risks.
In its revised industry outlook for 2012, the international airline association kept itsglobal industry profit forecast unchanged at $3 billion. A fall in oil prices, stronger thanexpected growth in passenger traffic and a bottoming out of the freight market are driving someimprovements in the profitability outlook. However, this is offset by the continued and deepeningEuropean sovereign debt crisis, IATA noted.
On cargo trends, the association said that cargo demand has bottomed out, following a sharpfall in 2011, in line with the moderate improvement of business confidence in a number of economiesoutside Europe. “But the upturn is weak and narrowly based, with only Middle Eastern airlinesseeing significant volume gains. European economic weakness is expected to limit any furtherimprovement. Overall 47.8 million tonnes of freight are expected to be shipped by air in 2012,basically unchanged from the 47.7 million tonnes carried in 2011,” IATA stated.
In terms of overall airline profits, this will be the second year of declining returns sinceairline profits peaked in 2010 at $15.8 billion with a net profit margin of 2.9 per cent. In 2011,industry profits fell to $7.9 billion for a 1.3 per cent net profit margin. This year’s projected$3.0 billion industry profit would yield a net profit margin of just 0.5 per cent, IATA noted.
Compared with the previous forecast in March, North American and Latin American carriers areexpected to see improved prospects. The outlook for African carriers is unchanged. But the outlookfor European, Asia-Pacific and Middle Eastern carriers has been downgraded, with European lossesnow expected to be $1.1 billion (nearly double the previously forecast $600 million loss).
“The $3.0 billion industry profit forecast has not changed. But almost everything in theequation has. Demand has been better than expected, so far this year. And fuel prices are now lowerthan previously anticipated, but that’s on the expectation of economic weakness ahead. The Eurozonecrisis is standing in the way of improved profitability and we continue to face the prospect of anet profit margin of just 0.5 per cent,” said Tony Tyler, IATA’s Director General and CEO.
“Although airlines face the common challenges of high fuel prices and economic uncertainty,the regional picture is diverse. Carriers in the Americas are seeing improved prospects for 2012.The rest of the world is seeing reduced profitability. For European carriers, the buvinessenvironment is deteriorating rapidly resulting in sizable losses,” said Tyler.
World GDP growth, a key driver of airline profitability, is expected to be 2.1 per cent in2012, IATA said. That is slightly better than the anticipated 2.0 per cent growth forecast inMarch. But this is still a slower growth environment than last year, and one in which airlines willstruggle to recover cost increases. Historically, the airline industry has fallen into losses (at aglobal level) when world GDP growth drops below 2.0 per cent.
IATA revised its passenger traffic forecast upwards to 4.8 per cent from 4.2 per cent in theprevious forecast, and now expects passenger numbers to reach 2.966 billion this year, up from2.835 billion in 2011. It also praised airlines’ efforts to control capacity and thus maintain highload factors.
At a regional level, North American carriers are expected to post a profit of $1.4 billion, aslight improvement on the $1.3 billion that the region’s carriers made in 2011. But Europeancarriers are expected to post the industry’s largest aggregate losses of $1.1 billion as theEurozone crisis continues.
Meanwhile, Asia-Pacific carriers are expected to make the largest contribution to industryprofits ($2.0 billion), even with a $0.3 billion downgrade from the previous outlook, due to theweak first quarter performance. The Middle East carriers are expected to post profits of $0.4billion, down from the March projection of $0.5 billion. This is a significant drop compared with2011, when the region’s carriers returned a profit of $1.0 billion.
Latin American carriers are expected to post profits of $0.4 billion. This is a $0.3 billionimprovement compared with the March projections. Like their counterparts in North America, LatinAmerica-based airlines are forecast to show a modest improvement on 2011 performance ($0.3billion). The main driver is a turnaround in the previously loss-making Brazilian market, ascapacity growth is reduced and yields improve.
The outlook for African carriers is unchanged with an expected loss of $0.1 billion. This isa downgrade on the break-even performance in 2011.
