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IATA raises profit forecasts - the world’s airlines can now upgrade from an espresso to a sandwich

Analysis

Speaking at IATA's AGM in Cape Town in early Jun-2013, IAG CEO Willie Walsh expressed his optimism about the airline industry: "Anybody who looks historically at what has happened to try to forecast what's going to happen in the future should forget about it and start with a blank sheet of paper. I genuinely think we're an industry that for the first time will start exceeding our cost of capital" (Bloomberg 3-Jun-2013).

At the same time, IATA raised its 2013 industry net profit forecast from USD10.6 billion to USD12.7 billion, an increase of 67% on 2012, but still only 1.8% of revenues. As IATA CEO Tony Tyler put it, 2013 airline profits will be around USD4 per passenger, "less than the price of a sandwich in most parts of the world". Moreover, IATA's forecast represents a return on capital of 4.8%, well below the 7%-8% cost of capital (the return expected by investors).

At least this year's sandwich should be more than the espresso coffee covered by last year's profits. But it's not yet time to break out the champagne.

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