Iata lifts airline profit estimates by 250%

The International Air Transport Association (IATA) on Tuesday raised 2010 profit growth forecast for airlines by more than 250 per cent on stronger and quicker recovery, higher yields and reduced oil costs.

The global body revised upward profit growth to $8.9 billion (Dh32.66 billion) from $2.5 billion (Dh9.17 billion) in its June forecast.

It raised revenues estimates by $15 billion to $560 billion, slightly below the $564 billion achieved in 2008 when the previous economic cycle peaked and prior to the start of the financial crisis.

Middle Eastern airlines’ profit forecast was also boosted substantially by 300 per cent to $400 million (Dh1.5 billion) from previous estimates of $100 million (Dh367 million).

It said regional airlines have benefitted from strong regional economies and an expanded share of long-haul markets. Unlike the previous two years, capacity has been added at a slower pace than demand growth in 2010, raising load factors and helping profitability.

Iata Director-General and CEO Giovanni Bisignani said: “The industry recovery has been stronger and faster than anyone predicted. The $8.9 billion profit that we are projecting will start to recoup the nearly $50 billion lost over the previous decade. But a reality check is in order. There are lingering doubts about how long this cyclical upturn will last.  Even if it is sustainable, the profit margins that we operate on are so razor thin that even increasing profits 3.5 times only generates a 1.6 per cent margin. This is below the 2.5 per cent margin of the previous cycle peak in 2007 and far below what it would take just to cover our cost of capital.”

But it predicted that global airlines’ profits will drop to $5.3 billion next year. “The impact of the post-recession bounce from re-stocked inventories will dissipate. Consumer spending is not expected to pick-up the slack as joblessness remains high and consumer confidence falls in Europe and North America.  Travel and freight markets will remain stronger in regions such as Asia, the Middle East and South America but we do not expect these hot spots to be able to sustain global growth in 2011.”

Iata said rapidly improving demand has pushed traffic 3-4 per cent above the pre-crisis levels of early 2008 and is expected to grow by 11 per cent against previous estimate of 10.2 per cent. Capacity will only expand by seven per cent - up from the previous forecast of 5.4 per cent.

“Yield improvements are the most important factor driving the improved outlook. On top of last year’s capacity cuts, capacity expansion is lagging behind demand improvements. The result is higher load factors and some pricing power for airlines. More business travelers on premium seats are also boosting average yields. Yields are now expected to grow by 7.3 per cent for passenger and 7.9 per cent for cargo - sharply higher than the 4.5 per cent previously projected for both. Even with this improvement, yields are still eight per cent below the pre-crisis levels of 2008.”

Total fuel bill, which accounts for about 25 per cent of industry costs, is now forecast to be $137 billion, $3 billion lower than forecast in June.

Asia-Pacific carriers are expected to post a $5.2 billion profit, better than the $3 billion recorded during the previous peak in 2007 and double the previously forecasted $2.2 billion.
Compared the June forecast, the prospects for Europe’s carriers improved from a loss of $2.8 billion to a loss of $1.3 billion.

North American carriers are now forecast to make $3.5 billion up from $1.9 billion. 

Latin American airlines continue to benefit from very strong regional economic growth particularly in the south of the region, boosting freight, travel and profits. The profit forecast has improved slightly from $900 million to $1.0 billion.

Prospects for African airlines remain unchanged from the previous forecast at $100 million profits.

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