IATA Raises Airline Profit Forecast, But Returns Thin

 - December 16, 2013, 10:45 AM
IATA director general Tony Tyler

Riding the favorable winds of increasing passenger traffic, slightly better fuel prices and revenues from ancillary services such as baggage fees, the world’s airlines should post record absolute profits in 2014, according to the International Air Transport Association (IATA). But some parts of the air transport system, particularly cargo and business-class passengers, remain at pre-recession levels.

IATA raised its global net profit forecast for 2013 by 10.25 percent, to $12.9 billion, from its September prediction of $11.7 billion. In 2014, its forecast calls for an aggregate industry profit of $19.7 billion, up 20 percent.

However, as impressive as $20 billion sounds, the average profit per passenger amounts to only $5.94. “To put that in perspective, McDonald’s down the street will make about the same amount of profit by selling four Happy Meals,” said Tony Tyler, IATA director general and CEO, at a press conference in Geneva, Switzerland on Thursday. “It begs the question as to whether $6 a passenger is a reasonable reward for airlines when you consider the technology, the skills, and the capital that’s invested.”

Without ancillary revenues, estimated at $13 per passenger, airlines would be losing money.

Robust passenger demand will continue on its historic trend, according to IATA, increasing 5- to 6 percent annually and exceeding 3 billion people in 2013 and 3.3 billion next year. “We’re approaching a point where the industry will move [the equivalent of] half the world’s population from one place to another over the course of a year, and do it safely,” noted Tyler.

The market for air cargo, meanwhile, remains constrained, said Brian Pearce, IATA’s chief economist. “The passenger market is alive and well,” he noted. “It’s a very different story, though, for air cargo.” Since a rebound in 2009-10, the volume demand for air cargo services has actually shrunk, he said, adding a cautionary note about the passenger market as well.

“It’s not all good news on the passenger market,” he said. “We’ve not seen a return of business passengers to first- and business-class seats.” After dropping from 9.5 percent to less than 8.0 percent as a proportion of total seats sold, growth in the sales of first- and business-class seats has remained stagnant since mid-2009.

Pearce attributes this to business travelers becoming more cost-conscious, the “shock of recession” and weakness in international trade.

North American airlines account for 45 percent of projected 2013 industry profits ($5.8 billion) and 42 percent of those forecast for 2014 ($8.3 billion). IATA cites asset use and other efficiencies from mergers as key. Profits in the Asia-Pacific region declined in 2013 for the third consecutive year, depressed by excess cargo capacity and weak demand, but IATA expects the trend to reverse next year. It projects modest profits in all other parts of the world.