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PROFITS UP, BUT SLOWER PACE EXPECTED: IATA

The International Air Transport Association (IATA) revised its 2013 global industry outlook downwards to $11.7 billion on revenues of $708 billion. Airline performance continued to improve in the second quarter, however at a slower pace than was expected with the previous projection (in June) of $12.7 billion. This reflects the impact on demand of the oil price spike associated with the Syrian crisis and disappointing growth in several key emerging markets.

Performance in 2013 is considerably better than the $7.4 billion net profit of 2012. The upward trend should continue into 2014 when airlines are expected to return a net profit of $16.4 billion. This would make 2014 the second strongest year this century after the record breaking $19.2 billion profit in 2010.

“Overall, the story is largely positive. Profitability continues on an improving trajectory. But we have run into a few speed bumps. Cargo growth has not materialized. Emerging markets have slowed. And the oil price spike has had a dampening effect,” said IATA director general Tony Tyler (pictured). “We do see a more optimistic end to the year. And 2014 is shaping up to see profit more than double compared to 2012.”

Airline performance remains strong. This year, airlines are expected to post the same operating margin (3.2%) as in 2006, even with a 54% hike in jet fuel prices. The industry has been able to absorb this enormous cost increase as a result of changes in the industry structure (through consolidation and joint ventures), increased ancillary sales and reduced new entry due to tight financial markets. Moreover, the industry is expected to have a relatively good year even with global economic growth at 2%. Previously 2% gross domestic product (GDP) growth was considered the point below which airlines posted losses.

“Airlines are demonstrating that they can be profitable in adverse business conditions. Efficiencies are being generated through myriad actions — consolidation, joint ventures, operational improvements, new market development, product innovations and much more. When market forces drive action, we get results that both strengthen the industry and benefit the consumer,” said Tyler. “Quite simply, stronger airlines can invest more in improving connectivity and service innovations. If more policy makers incorporated that into the cost-benefit analysis when developing regulations, we would have a much healthier industry generating even broader economic benefits.”

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