IATA releases rosier profit forecast for global airlines

This is expected to improve slightly to $8.4 billion in 2013, marginally better than the $7.5 billion forecast in October. Industry net post-tax margin, however, will remain weak at 1.0 per cent in 2012 and 1.3 per cent in 2013.

2012

Improved prospects for 2012 are being driven by strong airline performance in the second and third quarters. Despite high fuel prices and a slowing world economy, airline profits and cash flows held up at levels similar to 2006 when oil prices were about $45 per barrel lower and global growth in gross domestic product was 4.0 per cent.

Historically, when GDP growth has fallen below 2 per cent the airline industry has returned a collective loss.

"With GDP growth close to the ‘stall speed’ of 2.0 per cent and oil at $109.5 per barrel, we expected much weaker performance," said Tony Tyler, IATA’s director-general and chief executive officer. "But airlines have adjusted to this difficult environment through improving efficiency and restructuring. That is protecting cash flows against weak economic growth and high fuel prices."

The improved performance is most evident in large airlines, for which earnings before interest, taxes, depreciation and amortisation (EBITDA) averaged between 10 and 15 per cent of revenue in the third quarter of the year.

"It’s a diverging picture. Economies of scale are helping larger airlines to cope much better with the difficult environment than small and medium-sized carriers, which continue to struggle," Tyler said.

Overall performance has been positively affected by strong passenger traffic growth (5.3 per cent) and a 3-per-cent improvement in yields. Despite the slowing world economy, business travel was supported by more robust international trade in goods and service. This contributed to a positive picture for both passenger volumes and yields.

In sharp contrast, cargo markets have contracted by 2 per cent and cargo yields are down 2 per cent on 2011 levels. Although world trade is still expanding, the pattern of economic growth – concentrated in the emerging markets – has favoured ocean over air freight.

The slight relief in oil prices (at $109.50, down from $110 a barrel in the October forecast) did not translate into relief on the fuel price. Moving in the opposite direction, because of a widening of refinery margins, jet-fuel costs are expected to average $129.50 a barrel, which is a $1.80 increase on the previous forecast.

Asia-Pacific carriers are expected to post a net profit of $3 billion (up $700 million on the October forecast). The region will deliver the largest aggregate profit among the regions while the EBIT margin of 2.9 per cent ranks second behind North America.

It is important to note that the region’s carriers will see the largest absolute fall in profits compared with 2011, when Asia-Pacific airlines returned a profit of $5.4 billion, IATA said. The region is under pressure from weak cargo markets and slower economic growth in China.

2013

"Prospects for 2013 will be largely unchanged from 2012. Net profits are expected to rise to $8.4 billion, leaving the industry with a 1.3-per-cent net profit margin. It is good that we are moving in the right direction, but the year ahead is shaping up to be another tough one for the industry," Tyler said.

Asia-Pacific airlines are expected to see net profits grow by $200 million to $3.2 billion in 2013. While this is the second-highest absolute profit among the regions, EBIT margins for Asia-Pacific airlines are expected to grow significantly to 4.7 per cent (the strongest among the regions).

Economies in this region remain the most dynamic and the deterioration in cargo markets is expected to come to an end in 2013.