IATA revises outlook for airline industry
The airline industry’s recovery has been “stronger and faster than anyone predicted”, the International Air Transport Association said in its revised 2010 industry outlook.
The body is now projecting a profit of $8.9 billion, up from the $2.5 billion forecast in June.
“The $8.9 billion profit that we are projecting will start to recoup the nearly $50 billion lost over the previous decade,” said Giovanni Bisignani, IATA director general and CEO.
“But a reality check is in order. There are lingering doubts about how long this cyclical upturn will last. Even if it is sustainable, the profit margins that we operate on are so razor thin that even increasing profits 3.5 times only generates a 1.6% margin. This is below the 2.5% margin of the previous cycle peak in 2007 and far below what it would take just to cover our cost of capital.”
IATA said the improved outlook for 2010 was down to a combination of increasing demand, disciplined capacity management and stable costs.
“On top of last year’s capacity cuts, capacity expansion is lagging behind demand improvements. The result is higher load factors and some pricing power for airlines,” said its report.
“More business travellers on premium seats are also boosting average yields. Yields are now expected to grow by 7.3% for passenger and 7.9% for cargo. This is sharply higher than the 4.5% previously projected for both. Even with this improvement, yields are still 8% below the pre-crisis levels of 2008.”
Breaking performance down into regions, IATA said continuing economic weakness in the European economy and faltering consumer confidence continues to depress originating passenger traffic.
In its projections for 2011, it estimates that profitability will drop to $5.3 billion.
“The impact of the post-recession bounce from re-stocked inventories will dissipate,” said Bisignani.
“Consumer spending is not expected to pick-up the slack as joblessness remains high and consumer confidence falls in Europe and North America.
“Travel and freight markets will remain stronger in regions such as Asia, the Middle East and South America but we do not expect these hot spots to be able to sustain global growth in 2011.
“Slower growth is expected to keep costs in check and oil prices are expected to remain constant at $79/barrel. Industry growth is expected to fall back to 5%, in line with the historical trend.
“But a surge of aircraft deliveries (1400) will fuel capacity expansion of 6%—in excess of expected demand improvements. Falling load factors will remove the possibility for further yield improvement leading to a more challenging revenue environment.
“This year (2010) is as good as it gets for this cycle. Governments are running out of cash for pump priming. Unemployment remains high and business confidence is weakening. And we expect the 3.2% GDP growth of 2010 to drop to 2.6% in 2011. As a result, 2011 is looking more austere."
By Bev Fearis
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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