Brighter skies for world’s airlines
Contributors are not employed, compensated or governed by TD, opinions and statements are from the contributor directly
Stable oil prices and good management are boosting the world’s airlines, according to a new report.
In its latest global profit forecast for the industry, the International Air Transport Association (IATA) has upgraded its outlook for the world’s airlines to a profit of US$12.7 billion in 2013. This is US$2.1bn greater than the US$10.6bn profit IATA projected for the industry in March this year, and 67% higher than the US$7.6bn profit generated by the industry in 2012.
Despite this improvement however, airlines’ margins remain weak. With projected revenues of US$711bn this year, the industry’s net profit margin is expected to be just 1.8%.
“This is a very tough business. The day-to-day challenges of keeping revenues ahead of costs remain monumental. Many airlines are struggling. On average airlines will earn about US$4 for every passenger carried — less than the cost of a sandwich in most places,” said Tony Tyler, IATA’s director general & CEO.
The upgraded forecast is due to a number of factors, including a slight reduction in the expected average oil price, from US$111.80 per barrel in 2012 to around US$108 per barrel in 2012. With fuel costs an airline’s biggest expense, accounting for 30-40% of costs, any reduction in the price of oil has a major impact on airline performance. But Tyler also gave airlines credit for their good housekeeping while coping with a difficult operating environment.
“Generating even small profits with oil prices at US$108 per barrel and a weak economic outlook is a major achievement. Improved performance is what’s keeping airlines in the black. Airlines are putting more people in seats. For the first time in history, the industry load factor is expected to average above 80% for the year. And with ancillary revenues topping 5%, it is clear that airlines have found new ways to add value to the travel experience and to shore-up the bottom line,” the IATA chief said.
As Tyler mentioned, the industry’s global cabin load factor is expected to average 80.3% this year, which is a record high. Overall passenger demand is expected to increase 5.3% this year, ahead of a 4.3% expansion of capacity. A total of 3.13bn passengers are expected to travel in 2013 — the first time in history that passenger numbers have risen above the three billion mark.
All regions are expected to report a profit in 2013, but airlines in the Asia Pacific are forecast to lead the way, with combined gains of US$4.6bn – up from the previous forecast of US$4.2bn. Passenger demand in the region is expected to grow 6.3%, ahead of the expected 5.6% growth in capacity.
North American airlines are expected to deliver a US$4.4bn profit, significantly up from the US$3.6bn projected in March. This is largely down to airlines’ capacity management and efficiency measures.
European airlines are now expected to report profits of US$1.6bn this year – double the previous projection of US$800,000. Despite this, the region’s margin is expected to be just 1.3% – the second lowest after Africa.
Middle East carriers are expected to post a combined profit of US$1.5bn for 2013, slightly up on the previous projection of US$1.4bn, as passenger demand surges 15.0%. Latin American airlines are expected to post a US$600,000 profit, while African carriers are projected to generate just US$100,000.