Airline CFOs see losses reducing in next one year

Finance chiefs of airlines across the world expect an improvement in profitability over the next 12 months, the International Air Transport Association (Iata) said yesterday, citing a survey.

More than 73 per cent of chief financial officers surveyed by Iata said airlines' losses will diminish and the industry will see gains over the next one year.

Even as profitability continued to weaken through the third quarter, Iata said there was a marked improvement in expectations for the coming year.

The aviation trade body, whose biggest members include Emirates, British Airways, Qantas, United Airlines and Cathay Pacific, said the ongoing effect of weak demand was compounded by low-yield levels across the passenger and cargo business over the last quarter. More than 90 per cent of respondents said profitability fell in the third quarter.

However, the big change in the survey has been a swing from July 2009 when over 46 per cent of airlines expected a further deterioration in profitability over the next year. Now more than 73 per cent expect an improvement, said Iata.

"Note that this does not mean that a return to profit is expected. It does mean that the majority are now expecting losses to diminish over the next 12 months. There was a positive majority in all regions surveyed," said Iata. "However, there was a notable difference in responses between airlines in Asia and Europe. All the airlines in Asia expected an improvement, whereas a significant minority of European airlines expected a further deterioration."

In the Middle East, budget carriers seem to be bullish on 2010 growth. Kuwait-based Jazeera Airways, for instance, expects 2009 full-year profit while Air Arabia's Chief Executive Adel Ali recently said 2010 would be a better year depending on oil prices and the global economy. Jazeera also recently announced plans to establish a new hub in 2010 to increase its market share in the Middle East and North Africa.

Dubai's budget carrier, flydubai, is also planning to add more aircraft and destinations by the end of 2009 and expects a prosperous 2010.

Saudi Arabian low-cost carrier, Nasair, recently said it is "close to breakeven point and expects to reach this target in 2010". From the end of next year, the carrier expects to commence taking delivery of an order for about 30 aircraft, which, according to its CEO Walter Prenzler, "will be enough for the next five or six years".

On the other hand, Abu Dhabi-based Etihad Airways has pushed back its profit target to 2011 given the sharp downturn in global business travel. The airline's Chief Executive James Hogan recently said Etihad would see its first profitable year in 2011 rather than 2010 as earlier forecast due to a sharp downturn in global business travel this year.

Half of the survey respondents still report declines in passenger volumes over the past three months – compared to levels in the same quarter a year ago, Iata said. This is a smaller number than recorded in Iata's July survey and that more than 30 per cent now report increases.

The outlook for passenger traffic over the 12 months is improving with 60 per cent now expecting increases over that period, Iata added. There has also been a strong rise in outlook for cargo traffic.

"Almost three quarters of respondents now expect freight volumes to increase over the next year – up from just over half last survey," Iata stated.

Costs continued to fall for over three-quarters of respondents during the past three months, the survey said and added that airlines indicate cost reduction initiatives launched earlier in the year to continue to bear fruit – mainly related to network and staff restructuring.

"The fall in the US dollar has helped offset some of the recent rise in oil prices for many and jet fuel remains well below prices seen during the third quarter of 2008," said Iata.

Looking ahead, some respondents worry of further fuel price pressures related to increase in energy demand during the recovery.

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