Airline profits down for 2012; small bump forecast for 2013

Airline profits down for 2012; small bump forecast for 2013

Asia-Pacific and North American carriers are best performers according to a mixed forecast for the industry
An airplane lands at Schoenefeld Airport on May 25, 2012 in Schoenefeld, near Be
Smooth operations in the sky, turbulent times in airline business offices.

Airline revenues for 2012 are up a little even though they’re down a lot.

Asia-Pacific airlines are carrying more passengers but less cargo.

Anticipated 2012 global airline profits of $4.1 billion sound pretty good, until you realize that carriers are operating on a 0.6 percent profit margin.

If all that news leaves you feeling a little bit confused, then you’ve got a good sense of the cloudy economic conditions facing the world’s airline industry, according to a report issued October 1 by the International Air Transport Association (IATA).

The key message in the IATA’s announcement is a slight upward revision to an earlier economic forecast for the industry. Airlines are now expected to earn $4.1 billion in 2012, up from the $3.0 billion the IATA forecast in June.

Those figures, based on stronger than expected second quarter performance, are still well below the $8.4 billion in profit the industry notched in 2011.

IATA director general and CEO Tony Tyler gave a good-news-bad-news account of the industry with statements provided in conjunction with the release of the report.

“The fall in profitability this year will not be as bad as we had previously expected,” said Tyler. “Airlines are keeping their heads above water better than we thought … in a very difficult operating environment.

“If we look into which market segments are growing we can see that the premium side of the business is suffering. In July, for example, the number of economy passengers was up 3.0 percent, but the number of premium travelers was down 0.5 percent.”

Regional breakdown

Munich airport September 2012Increasing numbers of economy travelers, like this group in Munich in September, are helping some airlines offset a decline in business- and first-class passengers.The IATA report provided a regional breakdown of airline performance. Among the highlights:

Asia-Pacific: A decline in revenues from weakened cargo demands (regional carriers haul 40 percent of global cargo) were offset by strong passenger markets, particularly in China, still the world’s fastest growing major domestic market with 9.4 percent growth in the first eight months of 2012.

North America: Posting the largest improvement among all regions, North American carriers are expected to post profits of $1.9 billion in 2012, up from $1.3 billion in 2011. As harried North American passengers might guess, regional gains are being driven by exceptionally high passenger loads, which averaged 83.2 percent on flights through August 2012.

Europe: “European airlines are expected to post the largest loss of any region,” according to the IATA report, which blamed a weak regional economy, unsettled political issues and the Eurozone crisis for the downturn in profits.

Middle East: Although earnings have been flat in 2012, regional carriers continue to show the most robust passenger growth. Over the past decade, the share of international passenger traffic held by Middle Eastern carriers has grown from 4.8 percent to 11.5 percent.

Latin America: Growth in air traffic demand from Mexico and Chile are partially responsible for marginal 2012 profit gains over 2011.

Africa: Airlines on the continent are expected to break even, though performance varies widely from country to country. “The regions’ carriers have benefited … in some cases by investment and trade links with China and for some by strong oil revenues,” according to the IATA report.

Early view of 2013 guardedly optimistic

“In its first look at 2013, IATA estimates industry profits rising to $7.5 billion, as economic forecasts point to slightly stronger economic growth and lower oil prices,” said the IATA report.

Passenger traffic is expected to increase by 4.5 percent in 2013, with cargo loads expanding by 2.4 percent.

“European airlines are expected to be the only region in the red for 2013,” according to the report.

The IATA notes that the industry’s expected 1.1 percent anticipated return on capital is still woefully behind the rate enjoyed by other major industries.

“That airlines struggle to eke out an unsustainable 1.1 percent net profit margin is clear evidence that aviation still faces many challenges,” said Taylor.

The IATA is an international trade organization that represents 240 airlines, which it says account for 84 percent of total world air traffic.