24-Sep-2013 10:31 AM

IATA cuts USD1bn from 2013 industry profit forecast, sees upward profit trend continuing into 2014

IATA revised (23-Sep-2013) its 2013 global industry outlook downwards to USD11.7 billion, on revenues of USD708 billion. Operating margins are projected at 3.2%. The performance is an improvement on the USD7.4 billion net profit of 2012, but a cut of USD1 billion from the association's previous 2013 forecast. IATA forecast the upward trend should continue into 2014, projecting an industry net profit of USD16.4 billion. This would make 2014 the second strongest year this century after the USD19.2 billion profit in 2010. On the 2013 financial performance, IATA noted that airline performance continued to improve in 2Q2013, however at a slower pace than was expected with the previous projection (in Jun-2013). This reflects the impact on demand of the oil price spike associated with the Syrian crisis and disappointing growth in several key emerging markets. Despite a 54% hike in jet fuel prices since 2006, the industry has been able to absorb the increase as a result of changes in the industry structure (through consolidation and JVs), increased ancillary sales and reduced new entry due to tight financial markets.  IATA also outlined the following forecast drivers for 2013:

  • Economic Growth: Business confidence bottomed out at the end of 2012, but the expected acceleration of economic activity has not yet materialised. GDP growth in 2013 is projected at 2.0%, down from 2.2% in in 2012. Acceleration of improvements in developed markets (particularly the US) and a deceleration of growth in some key emerging markets (India, Brazil and to some extent China);
  • Oil Price: Forecast average of USD109 per barrel (Brent) for 2013, up USD1.0 per barrel than previously expected. Jet fuel prices have softened slightly, with a forecast average of USD126.4 per barrel, down USD1.0 from previous forecast. Overall fuel bill forecast at USD213 billion and 31% of total costs;
  • Passenger traffic: "Robust" growth at 5.0%, reduced from the the 5.3% previously projected and below the 5.3% growth recorded in 2012. Passenger numbers forecast at 3.12 billion, exceeding the 3 billion mark for the first time. Yields are expected to be flat for the year, below the 0.3% growth previously projected. Load factors are at record highs (80.2%) and yields in the US are above pre-recession levels;
  • Cargo: Growth of 0.9%, down from the previously projected 1.5. Cargo is expected to "remain in the doldrums", with the ability of airlines to match cargo capacity to demand limited by the natural growth in belly capacity. Cargo yields are expected to fall by 4.9%, deeper than the 2.0% decline previously projected. Cargo revenues are expected to decline USD8 billion, to USD59 billion from their peak in 2011. [more - original PR]

IATA director general and CEO Tony Tyler noted (23-Sep-2013) the association's USD1 billion downgrade of the airline industry profit in 2013 due to the industry situation "not improving as quickly as we had expected". According to Mr Tyler, the optimism is "on the passenger side of the business rather than in cargo". Emerging market growth in India, Brazil and to a certain extent China has been slower than anticipated, somewhat balanced by improvements in the US economy as well as a stabilisation in the Eurozone. Passenger yields are expected to decline 0.5% in 2014. Cargo demand is expected to see an uptick in 2014, but yields expected to deteriorate further. Fuel remains the industry's biggest cost item, with a slight softening forecast for 2014. Mr Tyler emphasised that even with overall improvement that IATA expects in 2014 the "buffer between profit and loss is very small", cautioning that new taxes and more onerous regulation "can quickly erode that". Mr Tyler added that "things are improving, but we are not yet at sustainable levels of profitability." [more - original PR]

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