Airlines' Profits To Fly Higher Than Expected In 2012

 @MarkJohansonIBT
on October 01 2012 4:03 PM

The outlook for the airline industry is rosy in all regions of the world -- all regions, that is, except one: Europe.

The International Air Transport Association announced an upward revision to its global outlook for 2012 Monday after improved global airline performance in the second quarter, estimating that airlines will earn $4.1 billion in 2012, up $1.1 billion from the $3 billion forecast in June.

Though the forecast looks bright, the revised figure is still less than half of the $8.4 billion the industry earned in 2011. Looking forward, however, IATA believes 2013 will be much healthier, with global profits rising modestly to $7.5 billion.

“The European sovereign debt crisis lingers on. China continues to moderate its growth. And the impact of recent quantitative easing in Japan and the U.S. will take time to yield growth,” said Tony Tyler, IATA’s director general and CEO.

Tyler also blames low business confidence, weak cargo demand and oil prices averaging around $110 a barrel for the slump in 2012.

“Even six years ago, generating a profit with oil at $110/barrel would have been unthinkable,” he said Monday. “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.

“While some of these risks have diminished slightly over recent months, they continue to take their toll on business confidence,” Tyler added. “The outlook improvement is due to airlines performing better in a difficult environment.”

Following a tough first quarter, airlines improved performance in the second quarter and posted profits close to those of previous years. Some markets, however, are performing better than others.

European airlines are expected to post the largest losses in 2012 at $1.2 billion, $100 million worse than previously expected. IATA believes the continent is plagued by high taxes, a burdensome regulatory environment and inefficient air traffic management infrastructure.

African carriers, meanwhile, are expected to break even in 2012, while Middle Eastern carriers post a modest $700 million profit, up $300 million from the previous forecast.

Latin American airlines also expect modest profits of $400 million, while North American carriers are forecast to post profits of $1.9 billion, up $500 million from the previous projections. The sizable increase, the largest among all the regions, is primarily due to tight capacity management, according to IATA.

Though North American carriers will have a stronger-than-expected year, Asia-Pacific airlines will see the highest profits this year at around $2.3 billion, $300 million better than previously forecast. Robust performance in passenger markets, IATA says, is compensating for a slump in the region’s major profit-maker: cargo.

IATA, which represents some 240 airlines comprising 84 percent of global air traffic, claims aviation supports 57 million jobs worldwide and $2.2 trillion in economic activity. Thus, Tyler believes the industry has an important role to play as the global economy struggles.

“Growth is the only way forward and a healthy aviation industry can stimulate that -- linking stagnating developed economies to robust emerging markets,” he said. “Aviation connectivity spurs growth at both ends. That is why it is important for governments to ensure aviation’s ability to be a catalyst for growth is not constrained. Unfortunately, in many parts of the world, it is an uphill struggle with high taxes, onerous regulation and insufficient infrastructure.”

All of this, he said, stunts industry growth to the detriment of the world economy.

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