IATA: Airline Industry Margins 'Pathetic'
http://online.wsj.com/article/SB10001424052748704694004576018993866460296.html
By DAVID PEARSON
PARIS—International airlines will likely beat earlier profit forecasts this year after revived passenger and cargo traffic, but the industry remains fragile and underlying profitability is weak.Global airlines are now expected to achieve an aggregate net profit of $15.1 billion this year, up from a forecast of $8.9 billion earlier this year, the International Air Transport Association said. The industry group said it has also tweaked its forecast for 2011 and now expects the airline industry to post an aggregate net profit of $9.1 billion next year, compared with an estimate of $5.3 billion made in September. IATA said, however, the airline industry's average 2.7% net-profit margin remains weak and will fall to 1.5% in 2011.
"Our profit projections increased for both 2010 and 2011 based on an exceptionally strong third-quarter performance. But despite higher profit projections, we still see the recovery pausing next year after a strong post-recession rebound. And the two-speed nature of the recovery is unchanged, with European airlines continuing to underperform other regions," said Giovanni Bisignani, IATA's director general and CEO.
"Margins remain pathetic. With a 2.7% net margin in 2010 shrinking to 1.5% in 2011, we are nowhere near covering our cost of capital. The industry is fragile and balancing on a knife edge. Any shock could stunt the recovery, as we are seeing with the results of new or increased taxation on airlines and travelers in Europe," said Mr. Bisignani.
IATA pointed out that although the changes in the industry forecasts appear dramatic in absolute numbers, the $6.2 billion increase in IATA's projection for the 2010 net profit is equal to just 1.1% of the industry's projected $565 billion in revenue for this year.
"Any increase in profits is a welcome step in the right direction. But the fact that we can increase our profit forecast by 70% and still be left with a net margin of just 2.7% shows just how far this industry has to go to achieve a normal level of profitability," Mr. Bisignani said.
IATA's latest projections assume passenger traffic growth of 8.9% in 2010, up from the 7.7% it forecast previously. It expects strong passenger yield growth of 7.3%, unchanged from the September outlook, and an average annual oil price in line with previously projected level of $79 a barrel.
"The third quarter of 2010 was exceptionally positive in terms of passenger traffic volume. Airlines met increased demand by utilizing their fleets more intensely. Fixed costs remained constant, passenger yields firmed and the increased revenues went almost directly to the bottom line," said Mr. Bisignani.
In contrast to improved conditions for passenger travel, the outlook for air cargo deteriorated from IATA's September forecast. Demand is now expected to grow by 18.5%—compared with the previously forecast 19.8%—limiting yield growth to 7%, below the previously forecast 7.9%.
"The post-recession rebound drove a rapid expansion for cargo earlier in the year, but it ran out of steam by the third quarter. Since May, overall volumes fell by 5%. This will only pick up when consumers have bought the products that are already on the shelves," Mr. Bisignani said.
"The industry will face tougher conditions in 2011 than what we are experiencing today," Mr. Bisignani predicted, partly due to higher fuel costs with the average price of crude oil expected to increase to $84 a barrel, up from the $79 a barrel for 2010.
AND,
June 8, 2010
Global Airline Industry Rebounds, Will See Profit in 2010 From Recovering Economy
Global Airline Industry Rebounds, Will See Profit in 2010 From Recovering Economy
The International Air Transport Association (IATA) yesterday (Monday) raised its airline industry outlook and now expects airlines to post a $2.5 billion profit in 2010, recovering from two years of ailing business.
The IATA said increasing passenger travel, a climb in cargo trade, and effective cost cutting measures will contribute to accelerating the industry's rebound.
"The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated. Airlines are benefiting from a strong traffic rebound that is pushing the industry into the black," IATA Director General Giovanni Bisignani said.
Previous industry predictions forecast a $2.8 billion loss. However the IATA revised its expectations for passenger traffic and cargo volume. Passenger traffic will grow 7.1% this year, up from the IATA's original prediction of 5.6%, and cargo volume will grow by 18.5%, up from the earlier estimate of 12%. Total revenue for the industry will be about $545 billion, up 13% from $483 billion in 2009, the group said.
Moody's Investors Service upgraded the industry's outlook Monday to stable from negative, saying they "expect profitability in the global airline sector to improve as we gain distance from the 2009 trough of the recession."
Bisignani cautioned that the recovery is fragile and that labor unions must prepare for more budget reductions.
The IATA said increasing passenger travel, a climb in cargo trade, and effective cost cutting measures will contribute to accelerating the industry's rebound.
"The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated. Airlines are benefiting from a strong traffic rebound that is pushing the industry into the black," IATA Director General Giovanni Bisignani said.
Previous industry predictions forecast a $2.8 billion loss. However the IATA revised its expectations for passenger traffic and cargo volume. Passenger traffic will grow 7.1% this year, up from the IATA's original prediction of 5.6%, and cargo volume will grow by 18.5%, up from the earlier estimate of 12%. Total revenue for the industry will be about $545 billion, up 13% from $483 billion in 2009, the group said.
Moody's Investors Service upgraded the industry's outlook Monday to stable from negative, saying they "expect profitability in the global airline sector to improve as we gain distance from the 2009 trough of the recession."
Bisignani cautioned that the recovery is fragile and that labor unions must prepare for more budget reductions.
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