The (IATA) expects airlines to achieve higher profits this year than predicted earlier, although next year will see industry profitability weaken.
The trade group forecasts a combined $6.9 billion profit for 2011, up from its previous $4 billion guidance. That equates to a 1.2% net profit margin. However, IATA believes that 2012 will be a worse year for airlines with profits shrinking to $4.9 billion and a 0.8% margin, meaning the industry is still far from returning the cost of capital.
“Airlines are going to make a little more money in 2011 than we thought,” IATA Director General and CEO Tony Tyler said in a conference call with journalists. “Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement.”
IATA bases its guidance on the assumption that global GDP will grow by 2.5% this year and by 2.4% in 2012. Wherever the economy is growing below 2.0%, airlines are losing money, Tyler says.
The improved outlook for 2011 is mainly due to Europe’s better-than-expected performance, with the weak euro helping inbound travel. Europe will contribute $1.4 billion to the total profit, $900 million more than expected earlier. However, Tyler cautions that this “is not sustainable.”
This year all regions will be profitable except Africa, which is only breaking even. Given the weaker 2012 forecast, Africa is projected to be loss-making next year. The Middle East will remain in the black despite of political unrest in the region and will contribute $800 million in profits. Margins are expected to be strongest in Latin America at 3.4%, followed by North America with 3%.
“Markets are holding up relatively well, [and] people are travelling,” Tyler says. This is reflected in volume growth which is still a healthy 5.9% in July, load factors of 83.1% in July, and yields that are likely to be up 3% this year.
The expected yield improvement this year compares to 6% in 2010 and a predicted 1.7% for 2012. Tyler also points out that these gains follow a yield drop of 14% in 2009, and the industry is still not where it was before the global financial crisis in terms of unit revenues.
IATA projects passenger traffic to grow by 4.6% in 2012. Cargo will grow by only 1.4% this year, down from the earlier 5.5% forecast. Cargo demand may reach its lowest point towards the end of this year, with growth not resuming before 2012, when IATA assumes demand will increase by 4.2%.