Airline profits take ‘small step in the right direction’
Profits in the airline industry are taking a "small step in the right direction", according to the latest report from the International Air Transport Association.
IATA is forecasting a modest improvement in the 2013 financial performance of the global airline industry, mainly thanks to stronger revenues.
"Against a backdrop of improved optimism for global economic prospects passenger demand has been strong and cargo markets are starting to grow again," said Tony Tyler, IATA’s director general and CEO.
"The economic optimism is also pushing fuel prices higher. We are seeing a $12 billion improvement in revenue, and a $9-10 billion increase in cost, most of which is related to fuel."
IATA now expects airlines to produce a combined net post-tax profit margin of 1.6% (up from the previously forecast 1.3%) with a net post-tax profit of $10.6 billion (up from the previously projected $8.4 billion).
North American airlines are expected to report a $3.6 billion profit, slightly ahead of the $3.4 billion previously projected and the $2.3 billion profit reported in 2012.
"The region is a mature market, particularly for domestic operations. Tight management of capacity in response to the high fuel cost environment will see a 1.3% expansion in demand leading a 1.1% expansion in capacity," said IATA’s report.
But IATA said the improvements must be kept in perspective.
"We are projecting that airlines will make a net profit of $10.6 billion on $671 billion in industry revenues," said Tyler.
"By comparison last year Nestle, a single company, made over $11.5 billion in profit on revenues of about $100 billion.
"Chronic anemic profitability is characteristic across most of the aviation value chain when compared to other sectors. It will require more than improving economic conditions to fix. Neither the challenges nor the benefits of doing so should be underestimated."
Tyler warned that the industry’s fortunes are not being helped by the actions of governments.
"Too often governments throw us curve balls and in the last weeks we had some unpleasant reminders," he said.
He said US budget sequestration will see cuts to air traffic management, security and border control that may cost more economically than the benefit of the cost savings achieved.
"Airlines don’t want special treatment, but they do need a joined-up policy framework that enables them to meet the growing needs for connectivity sustainably. With a 1.6% net profit margin, there is very little buffer between profit and loss," he said.
Bev
Editor in chief Bev Fearis has been a travel journalist for 25 years. She started her career at Travel Weekly, where she became deputy news editor, before joining Business Traveller as deputy editor and launching the magazine’s website. She has also written travel features, news and expert comment for the Guardian, Observer, Times, Telegraph, Boundless and other consumer titles and was named one of the top 50 UK travel journalists by the Press Gazette.
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