IATA forecasts falling airline profits in 2012 amid weaker economies

Manila Bulletin
September 22, 2011

MANILA, Philippines — This early, the International Air Transport Association (IATA) expects 2012 will be more difficult for the airline industry with profits falling to $4.9 billion on revenues of $632 billion for a net margin of just 0.8%.

“It looks like we are headed for another year in the doldrums,” warned Tony Tyler, IATA’s Director General and CEO. “With business confidence declining, it is difficult to see any potential for significant profitable growth.”

Despite high oil prices and economic uncertainty, “Airlines are going to make a little more money in 2011 than we thought,” he maintained. However, given the weak global economies it won’t be much.

While airline profits may rise from the $4 billion projected in June to $6.9 billion, “We should keep the improvement in perspective. The $2.9 billion bottom line improvement is equal to about a half a percent of revenue. And the margin is a paltry 1.2%. Airlines are competing in a very tough environment,” he expounded.

IATA emphasized that despite the improvements, profitability at these levels is still exceptionally weak (1.2% net margin) considering the industry’s total revenues of $594 billion.

World trade basically stopped growing at the end of 2010. The strong travel trend in 2011 is built on residual confidence from economic optimism at the beginning of the year. While some economies may be more durable, like China, the overall outlook is for a weaker end to 2011.

Air freight stagnated since the start of the year. IATA slashed its full-year volume growth projection from 5.5% to 1.4%. Airlines are expected to carry 46.4 million tons of cargo in 2011, down from the previous forecast of 48.2 million.

Air freight volumes reached their post-recession peak in May 2010, largely driven by re-stocking. July’s traffic was 4% lower than that level. It appears unlikely that a revival in air freight will begin before 2012.

Airlines managed to restore passenger load factors back to the 2010 highs. By July the global passenger load factor stood at 83.1%. Airlines met the better than expected passenger demand with more intense asset utilization. As much of this capacity also came with belly space for cargo, the freight load factor sank to 45.0% by July.

Tighter supply and demand conditions in passenger markets over the first half of the year are expected to offset the impact of a weaker second half. As a result passenger yield growth projection remained unchanged at 3.0%.