Airlines are expected to post a near-$20 billion profit next year
The global airline industry is notorious for losing money. But for various reasons, 2014 looks set to be the most profitable year ever.
That is the's (IATA) upbeat forecast and it applies to profits in absolute numbers. While the figure may look impressive, it only corresponds to a margin of 2.6%; the industry has had some better profit margins, most recently in 2010.
IATA predicts the industry will post a combined net profit of $19.7 billion next year, $3.3 billion higher than was forecast in September. Another reason for believing 2014 will be be better than previously projected is that 2013 profits are expected to be $12.9 billion (up from a projected $11.7 billion).
IATA Chief Economist Brian Pearce attributes this significant improvement of the industry's fortunes to several factors. Indications for a stronger global economy are becoming “visible,” he says, “and fuel prices have been flat for 3-4 years.” For 2014, Pearce expects “some easing” of fuel prices as substantial new supplies have been discovered and geopolitical tension, particularly surrounding Iran, is “going down.”
Director General and CEO Tony Tyler points out that airlines have been able to introduce ancillary fees more broadly, opening up other sources of revenue. He also cites “the positive impact that mergers and joint ventures are having, generating better connectivity for passengers and driving efficiencies.”
In absolute terms, North American carriers will deliver the largest portion to the $19.7 billion net profit expected for next year, $8.3 billion. Asia-Pacific airlines, $4.1 billion and European carriers, $3.2 billion. Middle Eastern airlines will make a combined $2.4 billion profit; Latin American carriers are set to reach $1.5 billion.
In terms of margins, too, North American airlines will also be the most profitable at 6.4%, followed by carriers in Latin America (5.1%), Middle East (4.7%), Asia-Pacific (4.4%), Europe (2%) and Africa (0.7%).
Still, the overall profit margin will be slim: “$19.7 billion sounds like a very big number. It is. But it is shared among hundreds of airlines,” Tyler says. IATA expects airlines to make a $5.94 average profit per passenger in 2014. Of the average $224 fare, $13 is allocated to ancillary fees, $180 is the actual air fare and about $30 goes to cargo and other revenue sources. Pearce says the returns are “still inadequate for investors.”
So far, the industry has not yet seen the return of international premium travel to pre-crisis levels. Pearce attributes this to the relatively weak state of global trade, which has had a dampening effect on business travel.
IATA sees the weak development of international trade as the main reason for the continued crisis for air cargo.