IATA Reports Improved Airline Profits as Year Ends

 - December 17, 2012, 1:25 PM
IATA director general and CEO Tony Tyler. (Photo: IATA)

Strong financial performance by the world’s airlines in the second and third quarters caused the International Air Transport Association (IATA) to revise up its yearly profit forecast for carriers by 63 percent from two months ago, to $6.7 billion. The association said profits should improve to $8.4 billion next year.

Still, IATA noted that despite the improvement from its outlook in October, “overall the industry remains weak.” The expected net profit for carriers amounts to less than the $8.8 billion the industry made in 2011. The industry’s net post-tax margin–the percentage carriers earn per dollar of sales after deducting expenses–will remain weak at 1 percent this year, the association said. It expects the net post-tax margin to rise to 1.3 percent next year.

IATA said airlines adjusted to high fuel prices and a sluggish world economy by improving efficiency and restructuring. Airline profits and cash flows remain at levels similar to those of 2006, when oil cost about $45 per barrel less and the world’s economy grew at a rate of 4 percent. “With GDP growth close to the ‘stall speed’ of 2 percent and oil at $109.50 barrel we expected much weaker performance,” IATA director general and CEO Tony Tyler said in announcing the outlook on December 13. Economies of scale are helping larger airlines perform better than small and medium-sized carriers in the current environment, he said. Earnings before interest, taxes, depreciation and amortization for larger carriers averaged between 10 percent and 15 percent of revenue in the third quarter.

In contrast to the improved outlook for passenger airlines, IATA expects the cargo sector’s performance to decline 2 percent as measured by metric ton kilometers carried. Cargo yields also have fallen 2 percent from 2011 levels. IATA said the pattern of economic growth concentrated in emerging markets favors ocean passage over air freight.

Also on December 13, IATA released the results of a study it commissioned of future travel trends. According to the “Future of Airline Distribution” study by Atmosphere Research Group of Cambridge, Massachusetts, passengers increasingly plan their travel via the Internet. Analysis by Google shows that a typical online travel shopper visits 22 websites over multiple sessions to research a trip.

“The growing use of the Internet by travelers who shop, plan and buy airline flights online shines a glaring light on the challenges airlines face in distributing their content,” said the study. The researchers expect airline websites to produce 59 percent of booking volume in 2017, up from 35 percent this year, and that transactions conducted on mobile devices will account for half of online direct bookings.