Airline profits climb

Airlines globally are expected to post a net profit of US$6.9 billion this year as stronger passenger numbers offset the impact of the weak global economy, industry group IATA said Tuesday.

The new forecast by the International Air Transport Association was better than its last projection of US$4 billion, made in June, but is still far off the US$16 billion airlines earned in 2010.

And net profit in 2012 is predicted to weaken further to US$4.9 billion due to the expected deterioration of world economic conditions, IATA director general and chief executive Tony Tyler told a news conference in Singapore.

“Why are we doing better than previously expected? It’s about travel volumes,” Tyler said at IATA’s Asia Pacific office.

“Despite the economic doom and gloom, people are travelling.”

In the seven months to July, passenger volumes were up 6.4% over the year before, Tyler said, adding however that cargo had stagnated because of a slowdown in world trade.

Cargo volumes expanded only 1% in the first seven months of the year compared to the same period last year.

Revenues for the full year are forecast at US$594 billion, but fuel prices continue to be a drag, with a projected total fuel bill of US$176 billion seen to account for 30% of industry costs.

This is based on crude prices at US$110 a barrel, which would translate into jet fuel at US$126.50.

Oil prices are expected to fall slightly to an average US$100 a barrel next year, “but due to the impact of hedging, it will actually increase fuel to 32% of costs,” Tyler said.

“And for the first time, the industry fuel bill is expected to exceed US$200 billion.” The fuel cost will be on projected 2012 revenues of US$632 billion.

Shukor Yusof, an aviation analyst with Standard & Poor’s Equity Research in Singapore, said IATA’s upgraded forecast this year was on the cards given the buoyant air travel market in the first half of 2011.

But he added that the forecast for 2012 is under threat.

“We think 2012 could present formidable challenges for airlines,” Shukor told AFP.

“Volatile oil prices, a weakened US economy and the debt crisis in Europe could all combine to clobber even the most resilient of regions, and the carriers that are located there.”

If any unforeseen natural disasters — such as the Japan catastrophe in March — should strike, “the projected profit ofUS $4.9 billion for 2012 may look overly optimistic,” he added.

Asia Pacific carriers are expected to turn in a profit of US$2.5 billion this year, US$400 million better than IATA’s June forecast, although earnings are weighed down by weak cargo volumes due to the impact of the Japanese tsunami and earthquake in March on the supply chain.

North American airlines are expected to deliver a net profit of US$1.5 billion, while their European counterparts are likely to make US$1.4 billion.

Middle East airlines should book a net profit of US$800 million this year as they weather the impact of political unrest in the region and Latin American carriers should earn US$600 million.

African airlines may well slip back to losses of around US$100 million next year after breaking even this year.

For European carriers this year, “the weak euro is helping the industry on volumes — encouraging inbound travel and boosting exports,” Tyler said, adding however that “we do not see this improvement as sustainable.”

Next year, the profitability of European airlines is expected to fall sharply to US$300 million, with the decline accounting for over half of the projected drop in profits for the industry worldwide, he said.

Source - ttrweekly