IATA Boosts Profit Forecast with Guarded Optimism

 - March 25, 2013, 11:25 AM
IATA’s improved profit forecast for 2013 shows Asia-Pacific carriers surging ahead of growth rates for airlines in other regions. Air China’s order earlier this month for a mix of new Boeing 747-8s, 777-300ERs, 737-800s and 777 Freighters underscored the trend. (Photo: Boeing)

The world’s airlines will achieve somewhat higher than expected profits this year, according to the latest projections from the International Air Transport Association (IATA). The industry group now expects its members to post a combined net post-tax profit margin of 1.6 percent this year (up from the earlier projection of 1.3 percent) on net income of $10.6 billion (up from $8.4 billion).

In a March 20 report, IATA identified three key factors behind the improved outlook: improved world GDP growth forecasts for 2013 (increased from 2.1 percent in 2012 to 2.4 percent in 2013); the belief that the global industrial cycle bottomed in last year’s third quarter, after which has come six months of increased output and improved business confidence; and structural improvements in the airline industry’s financial performance, reflected in a 7-percent overall increase in share prices since the beginning of this year, despite a 5-percent hike in fuel costs.

However, IATA also warned that “considerable risks remain that could derail recovery.” In particular, the association expressed concern about fresh signs of serious financial instability in Europe. By contrast, it expects Asia-Pacific carriers to generate the highest profits this year, with a $4.2 billion net result. North American airlines–projected to register a collective profit of $3.6 billion–will follow, said IATA.

“The improvements in airline profitability are encouraging,” commented IATA director general and CEO Tony Tyler. “But they 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. By comparison last year [food group] Nestlé, a single company, made more than $11.5 billion in profit on revenue of about $100 billion.”

IATA’s forecasters see fuel costs continuing to rise this year. At the same time, they report improved cash flow at member carriers, although mainly concentrated in thriving regions such as Asia. “Consolidation in domestic markets and joint ventures on some long-haul routes have been key factors in generating efficiency gains to support financial performance,” said the report. “This is illustrated by a rise in load factor from 76.1 percent in 2006 to 79.8 percent in 2013.”