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Aviation Industry Poised For Higher Profits

by Ulrika Lomas, Tax-News.com, Brussels

11 October 2012


Aviation operators are expected to begin recovering the profit margins they lost to the financial crisis, supported by stronger international trade and more consistent fuel prices.

Revising upward its global aviation outlook for 2012, the International Air Transport Association (IATA) said that profits are expected to rise to USD4.1bn in 2012, up from the USD3bn level forecast in June. This however remains substantially lower than the USD8.4bn in profits the industry reported in 2011. 2013 profits are expected to be subdued in comparison.

Tony Tyler, IATA’s Director General and CEO, said the improvement had been as a result of airlines' efforts to adapt to the tight profit margins they face, not as a result of economic improvements.

“The European sovereign debt crisis lingers on; China continues to moderate its growth; and the impact of recent quantitative easing in Japan and the US will take time to yield growth," he said. "While some of these risks have diminished slightly over recent months, they continue to take their toll on business confidence. The outlook improvement is due to airlines performing better in a difficult environment.”

Tyler pointed out that industry consolidation is producing positive results. It has allowed operators to keep asset utilization rates high in the passenger segment despite slowing demand and increasing aircraft deliveries, he said.

“Even six years ago, generating a profit with oil at USD110/barrel (Brent) would have been unthinkable. The industry has re-shaped itself to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating. But despite these efforts, the industry’s profitability still balances on a knife-edge, with profit margins that do not cover the cost of capital,” said Tyler.

“Aviation has an important role to play as the global economy struggles. Growth is the only way forward and a healthy aviation industry can stimulate that - linking stagnating developed economies to robust emerging markets. Aviation connectivity spurs growth at both ends. That is why it is important for governments to ensure aviation’s ability to be a catalyst for growth is not constrained. Unfortunately, in many parts of the world, it is an uphill struggle with high taxes, onerous regulation and insufficient infrastructure. All of this stunts industry growth to the detriment of the world economy,” said Tyler.

According to IATA, the passenger market has performed well in the face of weak business confidence in Western economies. Demand is expected to grow by 5.3% over the course of 2012, which is 0.5% better than was foreseen in June. Over the first eight months of 2012 passenger demand has increased by 1.4% ahead of capacity. These tighter supply and demand conditions led to strong load factors which averaged at 79.3% for January to August 2012.

TAGS: aviation

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