The International Air Transport Association or IATA on Monday said global industry profits are expected to be unchanged from the previous forecast at $3 billion, amid better-than-expected demand and lower fuel prices. However, the industry group warned that Eurozone crisis is standing in the way of improved profitability.
According to IATA, a fall in oil prices, stronger than expected growth in passenger traffic and a bottoming out of the freight market are driving some improvements in the profitability outlook. However, this is offset by the European sovereign debt crisis, as markets expect a further deterioration and damage to economic growth.
Tony Tyler, IATA's Director General and CEO, said, "The $3.0 billion industry profit forecast has not changed. But almost everything in the equation has. Demand has been better than expected, so far this year. And fuel prices are now lower than previously anticipated, but that's on the expectation of economic weakness ahead. The Eurozone crisis is standing in the way of improved profitability and we continue to face the prospect of a net profit margin of just 0.5%."
After a peak in airline profits of $15.8 billion in 2010 with a net profit margin of 2.9 percent, this will be the second year of declining returns. In 2011, industry profits fell to $7.9 billion for a 1.3 percent net profit margin. This year's projected $3.0 billion industry profit would yield a net profit margin of merely 0.5 percent.
Just as the previous forecast issued in March said, North American and Latin American carriers are expected to see improved prospects and the outlook for African carriers is unchanged.
North American carriers are expected to post a profit of $1.4 billion, up from the March projection of $0.9 billion, driven by a significant improvement in yields on the back of tight capacity management.
European carriers are expected to post the industry's largest aggregate losses of $1.1 billion, a $0.5 billion downgrade from the March forecast.
The outlook for European, Asia-Pacific and Middle Eastern carriers has been downgraded now. European losses are now expected to be $1.1 billion, nearly double the previously forecast $600 million loss.
Regarding traffic, IATA said that up to April, passenger demand, measured in revenue passenger kilometers, continued to expand at an above-trend rate of 6 percent. The strongest markets were linked to Asia, Latin America, and the Middle East, but a weaker second half of the year is expected as deepening problems in Europe damage confidence.
Yet, the strength of travel demand in the first part of this year has boosted the forecast for air travel growth to 4.8 percent from 4.2 percent in the previous forecast. Passenger numbers are expected to reach 2.966 billion this year, up from 2.835 billion in 2011.
Overall 47.8 million tonnes of freight are expected to be shipped by air in 2012, compared to 47.7 million tonnes carried in 2011.
Growth in available tonnes kilometers is forecast to be limited to 3.3 percent this year, compared with growth of 3.5 percent in both passenger and cargo traffic. Load factors and aircraft utilization are expected to be kept close to current high levels, limiting the reduction in profitability.
Cost increase is expected to drop to 7.3 percent in 2012 from 10.6 percent in 2011, owing to limited capacity growth, high asset utilization and lower oil prices. However, revenue growth is expected to slow to 5.7 percent from last year's 9.3 percent.
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