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12-Dec-2013 11:16 PM

IATA: 2014 forecast to be largest ever absolute profit for the airline industry

IATA announced (12-Dec-2013) an upward revision to its 2013 industry financial outlook to a global net profit of USD12.9 billion, up from the Sep-2013 forecast of USD11.7 billion. IATA also raised its 2014 forecast to USD19.7 billion, up from the Sep-2013 forecast of USD16.4 billion. IATA expects net margins of 1.8% in 2013 (up from 1.1% in 2012) and 2.6% in 2014.

Forecast drivers:

  • Economy: Global GDP up 2% in 2013 and 2.7% in 2014 (unchanged forecast). General trend of improvement in developed economies - particularly the US - and relatively disappointing growth in BRICS nations expected to continue into 2014.
  • Passenger demand: Passenger numbers to reach 3.1 billion in 2013 and grow 6% to 3.3 billion in 2014.
  • Yields: Industry-wide average yields are expected to fall by 0.2% in 2013 and by 0.6% in 2014.
  • Ancillary revenues: Remain a key driver of improved financial performance, estimated at USD13 per passenger, greater than the USD5.94 per passenger profit that airlines are expected to earn in 2014. Without ancillaries, the industry would be making a loss from its core seat and cargo products.
  • Structural adjustments: Improved industry structure and efficiency gains allow the industry to leverage improving economic cycle to boost profitability significantly, notably in North America, where consolidation has progressed the furthest. European airlines are expected to see some improvements in profitability from successful JVs over the North Atlantic.
  • Cargo demand: 2013 traffic of 51.6 million tonnes in 2013, increasing to 52.5 million tonnes in 2014.
  • Cargo yields: -2.1% in 2014, offsetting the modest demand increase. Belly capacity continues to be introduced as airlines seek to maximise on the robust passenger demand.
  • Cargo revenues: USD60 billion for both 2013 and 2014.
  • Fuel: Oil prices expected to see a slight downward movement from USD108.2 per barrel (Brent) in 2013 to USD104.5 per barrel in 2014. This is USD0.80 and USD0.50 less per barrel than previously forecast. Declining cack spread to result in savings of USD2 billion in 2013 (cutting total fuel bill to USD211 billion) and USD5 billion in 2014 (to USD210 billion) compared to Sep-2013 forecast.

Regional outlooks:

  • North America: USD5.8 billion profit in 2013, increasing to USD8.3 billion in 2014. In both years North American carriers will deliver both the highest absolute profits and the strongest EBIT margins (4.8% in 2013, 6.4% in 2014).
  • Europe: USD1.7 billion profit in 2013, rising to USD3.2 billion in 2014. EBIT margins forecast at 1.3% in 2013 and 2.0% in 2014 - the weakest next to those of Africa. Region remains burdened by high costs, cumbersome regulation and high taxes.
  • Asia-Pacific: USD3.2 billion profit in 2013, the third consecutive year of declining profits. USD4.1 billion profit forecast for 2014. EBIT margin forecasts of 4.1% in 2013 and 4.4% in 2014. Profitability subdued by the ongoing cargo weakness and the impact on supply-demand conditions of an expected delivery of 710 new aircraft next year.
  • Middle East: USD1.6 billion profit in 2013, increasing to USD2.4 billion in 2014. EBIT margins of 3.8% in 2013, improving to 4.7% in 2014.The region's hubs, particularly in the Gulf, continue to expand in support of growing long-haul connectivity.
  • Latin America: USD700 million profit in 2013, increasing to USD1.5 billion in 2014. EBIT margins of 3.1% in 2013 and 5.1% in 2014. Airlines in the region are burdened with infrastructure that is not keeping pace with the growth in demand.
  • Africa: Outlook unchanged, with USD100 million loss in 2013 switching to a USD100 million profit in 2014. EBIT margin of -0.5% in 2013 improving to 0.7% in 2014. The region's carriers face stiff competition on intercontinental routes while intra-African connectivity is underdeveloped as a result of market access restrictions.

IATA: "Overall, the industry's fortunes are moving in the right direction. Jet fuel prices remain high, but below their 2012 peak. Passenger demand is expanding in the 5-6% range-in line with the historical trend. Efficiencies gained through mergers and joint ventures are delivering value to both passengers and shareholders. And product innovations are growing ancillary revenues... We must temper our optimism with an appropriate dose of caution. It's a tough environment in which to run an airline. Competition is intense and yields are deteriorating. Cargo volumes haven't grown since 2010 and cargo revenues are back at 2007 levels. The passenger business is expanding more robustly," Tony Tyler, director general and CEO. Source: IATA, 12-Dec-2013. [more - original PR]

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