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Airline Industry Profits Continue To Rebound

by Ulrika Lomas,, Brussels

13 March 2014

The International Air Transport Association (IATA) has announced that the airline industry remains on track to deliver a second consecutive year of improved profits.

This is despite a downward revision to the earlier forecast from IATA of an industry profit of USD19.7bn. IATA now projects that the industry will post a profit of USD18.7bn in 2014 on account of higher oil prices, which are now expected to average USD108 a barrel, up USD3.5 compared with the data for the previous projection.

IATA expects that the higher fuel bill will be largely offset by stronger demand, especially for cargo, which it said is being supported by a strengthening global economy. Overall industry revenues are expected to rise to USD745bn (USD2bn higher than previously forecast).

"In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment, and that is compensating for the challenges of higher fuel costs related to geo-political instability. Overall industry returns, however, remain at an unsatisfactory level with a net profit margin of just 2.5 percent," commented Tony Tyler, IATA's Director General and CEO.

The aviation industry retains on average USD5.65 per passenger in net profit. This is an improvement on 2012 and 2013 levels of USD2.05 and USD4.13, respectively, but is below the USD6.45 achieved in 2010.

"The efficiencies of improved industry structure through consolidation and joint ventures is providing more value to passengers and helping airlines to remain profitable even in difficult trading conditions. But we still need governments to understand the link between aviation-friendly policies and broader economic benefits. In many parts of the world the industry's innate power to drive prosperity through connectivity is compromised by high taxes, insufficient infrastructure, and onerous regulation," said Tyler.

The forecasts are based on a projection that passenger demand will grow by 5.8 percent in 2014. This is slightly weaker than the previous forecast of six percent, but an improvement on the 5.3 percent growth rate for 2013. Passenger yields are expected to deteriorate, however, by 0.3 percent.

Cargo demand is to show the largest improvement, IATA predicts. Instead of the previously projected 2.1 percent growth, IATA now predicts that air cargo is headed for 4 percent growth in 2014. The yield decline will moderate, from the previous forecast of a 2.1 percent fall, to a decline of 1.5 percent, IATA said.

"Trading conditions remain challenging, but positive macro-economic trends are providing a much-needed boost. There are however several major changes which continue to challenge the cargo business. Traditionally air cargo has grown only slightly less than world trade, at twice the rate of expansion of industrial production. The recent trend is for air cargo, world trade, and industrial production to grow in tandem," IATA said.

With profits squeezed by the financial crisis, ancillary revenues for airlines have played a key role in improving profitability, particularly for budget airlines. IATA said that airlines are continuing to introduce new options for passengers. With the average fare per passenger at about USD181, ancillary services now add almost USD14.

On a regional basis, all regions are expected to see higher profits and earnings before interest and taxes (EBIT) margins in 2014 than in 2013:

  • North American airlines are expected to post a profit of USD8.6bn – the highest of any region, and up USD300m on the previous forecast. If the region achieves this level of profit it would be twice that recorded in 2010, the previous peak.
  • European airlines are expected to post a USD3.1bn profit – USD100m less than previously forecast, but a significant improvement on the USD1.2bn the region secured in 2013.
  • Asia-Pacific airlines are expected to post profits of USD3.7bn in 2014, with the cargo market pushing up profitability in particular. This projection is substantially lower than IATA's previous projection, which had been USD400m higher.
  • Despite the substantial rate of growth being achieved by Middle Eastern airlines, their profitability in 2014 is expected to be just USD2.2bn. This is an improvement on the USD1.6bn profit that the region's airlines made in 2013, but is USD200m lower than the previous forecast.
  • Latin American airlines are expected to post a profit of USD1bn – USD500m less than previously projected, following a weaker than expected improvement in 2013. This is still more than double the profits that the region recorded in 2013 of USD400m.
  • African airlines will post the lowest profit of all the regions, as in previous years. The profit projection is unchanged for Africa at USD100m, but IATA highlighted that profitability is far from being evenly spread across the continent.

TAGS: aviation

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