Iata downgrades airline profit forecast

Iata downgrades airline profit forecast

The impact of a spike in oil prices due to the Syrian crisis and disappointing growth in several key emerging markets has led Iata to downgrade its global airline profits forecast.

The airline industry body revised its 2013 global industry outlooks down to $11.7 billion on revenue of $708 billion from a previous projection of $12.7 billion.

However, this year’s performance is expected to be far better than the $7.4 billion net profit of 2012.

The upward trend should continue into 2014 when airlines are expected to return a net profit of $16.4 billion.

This would make 2014 the second strongest year this century after the record breaking $19.2 billion profit in 2010, according to Iata.

But the balance between profit and loss remains delicate despite the forecast improvement for 2014.

Director general and chief executive Tony Tyler (pictured) said: “A $16.4 billion profit for transporting some 3.3 billion passengers means that airlines will retain an average of about $5 per passenger. That very simple calculation demonstrates that even a small change in the operating environment - a new tax or other cost increase for example - could change the outlook quite significantly.”

He added: “Overall, the story is largely positive. Profitability continues on an improving trajectory. But we have run into a few speed bumps.

“Cargo growth has not materialized. Emerging markets have slowed. And the oil price spike has had a dampening effect.

“We do see a more optimistic end to the year. And 2014 is shaping up to see profit more than double compared to 2012.”

Airlines are expected to post the same operating margin (3.2%) this year as in 2006, even with a 54% hike in jet fuel prices.

The industry has been able to absorb the giant cost increase as a result of  consolidation and joint ventures, increased ancillary sales and reduced new entry due to tight financial markets.

Carriers are expected to have a relatively good year even with global economic growth at 2%. Previously 2% gross domestic product growth was considered the point below which airlines posted losses.

European airlines are expected to see a near doubling of profits to $3.1 billion in 2014, although even this will only generate a profit margin of 1.9%.

“Airlines are demonstrating that they can be profitable in adverse business conditions,” Tyler added. “Efficiencies are being generated through myriad actions - consolidation, joint ventures, operational improvements, new market development, product innovations and much more.

“When market forces drive action, we get results that both strengthen the industry and benefit the consumer. Quite simply, stronger airlines can invest more in improving connectivity and service innovations.”

He added: “If more policy makers incorporated that into the cost-benefit analysis when developing regulations, we would have a much healthier industry generating even broader economic benefits.”

 

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