Modest global growth predicted by IATA but main winners will be airlines in the Middle East and Asia

By Victoria March 20, 2013 14:08

Modest global growth predicted by IATA but main winners will be airlines in the Middle East and Asia

Continuing the trend that has been prevalent for many quarters, although the International Air Transport Association (IATA) is predicting a modest improvement in its outlook for the 2013 financial performance of the global airline industry, airlines in the Middle East and Asia are expected to outperform the rest of the world.

IATA now expects airlines to produce a combined net post-tax profit margin of 1.6% (up from the previously forecast 1.3%) with a net post-tax profit of $10.6 billion (up from the previously projected $8.4 billion).
“Industry profits are taking a small step in the right direction. Against a backdrop of improved optimism for global economic prospects passenger demand has been strong and cargo markets are starting to grow again. The economic optimism is also pushing fuel prices higher. We are seeing a $12 billion improvement in revenue, and a $9-10 billion increase in costs—most of which is related to fuel,” said Tony Tyler, IATA’s Director General and CEO.
Asian-Pacific airlines are expected to deliver the largest absolute contribution to industry performance with a $4.2 billion net profit expected for 2013 (up from $3.2 billion previously projected and from the $3.9 billion reported for 2012). Asian carriers comprise about 40% of the air cargo market and will be the biggest beneficiaries of the expected upturn in cargo demand. Carriers in the region are expected to see average demand growth of 4.9%, slightly outpaced by a 5.0% capacity expansion, says IATA.
Middle Eastern airlines are expected to post a profit of $1.4 billion. This is up slightly from the $1.1 billion previously forecast and stronger than the $900 million profit recorded in 2012. The growing role of the region’s airlines in providing connectivity to developing markets is reflected in strong traffic growth. The region’s airlines are expected to add 12.8% in capacity in 2013 and this will be outpaced by demand growth of 13.7%. The region’s carriers rank third in terms of operating profitability with an Earnings Before Interest and Taxes (EBIT) margin of 3.4%, after Asia-Pacific (5.3%) and North America (4.1%).
North American airlines are expected to report a $3.6 billion profit. This is slightly ahead of the $3.4 billion previously projected and the $2.3 billion profit reported in 2012. The region is a mature market (particularly for domestic operations). Tight management of capacity in response to the high fuel cost environment will see a 1.3% expansion in demand leading a 1.1% expansion in capacity.
European carriers are expected to report an $800 million profit. This is an improvement on the previously projected breakeven performance and the $300 million profit in 2012, but at only 0.4% of revenues that’s barely different from breakeven. And it is the market that will be most affected by volatility caused by the Eurozone crisis. The European domestic market continues to be weak, reflecting recessionary conditions across the continent. However, airlines are expected to show stronger performance on long-haul routes to emerging markets. Overall demand for European carriers is expected to grow by 2.6% which is in line with a capacity expansion of 2.5%.
Latin American airlines will post a $600 million profit. It is the only region to see a decline ($100 million) compared to the December forecast. This will, however, represent a doubling of profit compared to 2012. The continent’s growth has slowed in response to earlier losses in volatile domestic markets. Nonetheless, the region will see the second highest growth in demand (8.1%) and that will be 1.4 percentage points ahead of expected capacity expansion.
African airlines are expected to post a $100 million profit in 2013. That is ahead of the break even performance previously projected and the $100 million loss of 2012. African carriers are expected to see a 6.5% increase in demand during 2013 which they will meet with a 6.4% expansion in capacity. The continent continues to be a focal point for growth by those carriers located in the region and those providing services into the region. Competition between the two remains fierce.
Confidence in the global airline industry is rising around several factors, including the fact that GDP growth forecasts for 2013 have been upgraded to 2.4% from 2.1% in 2012, while the bottom of the global industrial production cycle was reached in the third quarter of 2012 and there is a structural improvement in the airline industry’s financial performance as recognized by a 7% increase in share prices since the beginning of the year, despite a 5% increase in fuel costs.
However, IATA noted that considerable risks remain which could derail recovery, specifically the unfolding crisis in Cyprus and the fallout in the Eurozone.

By Victoria March 20, 2013 14:08
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