IATA Firms Up Profit Forecast But Europe Still Lags

 - October 2, 2012, 6:56 AM

The International Air Transport Association (IATA) has issued an improved forecast for global airline profits this year, but the latest projections point to more pain for Europe’s carriers. IATA now predicts the world’s airlines will achieve a combined profit of $4.1 billion this year ($1.1 billion higher than its last projection of $3 billion made in June 2012). But the industry group sees the net profit margin falling from the 1.4 percent achieved in 2011 to 0.6 percent in 2012 (although this will be up from 0.5 percent in its June forecast).

IATA has revised upwards its profitability forecasts for North America, the Asia-Pacific region and the Middle East, with Latin America essentially unchanged and African carriers expected to break even. But in Europe, IATA sees carriers posting a $1.2 billion net loss for this year ($0.1 billion worse than it anticipated in June). Looking ahead to next year, IATA’s early forecast envisions global airline profits rising modestly to $7.5 billion with a net margin of 1.1 percent.

IATA director general and CEO Tony Tyler praised airlines for adapting to difficult trading conditions, but warned that the industry still has not turned the corner on the threats to its profitability. “Even six years ago, generating a profit with oil at $110 per barrel would have been unthinkable,” he said. “The industry has reshaped 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.”

The association’s latest traffic data for August showed air transport demand flattening out, but with significant regional variations and the air freight sector dipping. Overall demand for air travel was up by 5.1 percent on August 2011, but some of this was due to the timing of the Ramadan holidays. Adjusting data for this factor showed that demand has remained flat since June and has risen by only 1.2 percent since January this year.