|
News
Improved Profitability
But Europe Still
Lags in the Red
Singapore - The International Air Transport Association (IATA)
revised its 2010 industry outlook and is now projecting a profit of $8.9
billion (up from the $2.5 billion forecast in June). In its first look
into 2011, the Association estimates that profitability will drop to $5.3
billion.
“The industry recovery has been stronger and faster than
anyone predicted. The $8.9 billion profit that we are projecting will
start to recoup the nearly $50 billion lost over the previous decade. But
a reality check is in order. There are lingering doubts about how long
this cyclical upturn will last. Even if it is sustainable, the
profit margins that we operate on are so razor thin that even increasing
profits 3.5 times only generates a 1.6% margin. This is below the 2.5%
margin of the previous cycle peak in 2007 and far below what it would
take just to cover our cost of capital,” said Giovanni Bisignani, IATA’s
Director General and CEO.
The improved outlook for 2010 is being driven by a
combination of factors. On the revenue side increasing demand and
disciplined capacity management are leading to sharply stronger yields
pushing revenues higher. At the same time, costs remain relatively
stable.
Forecast highlights for 2010:
Demand and Capacity: Rapidly improving
demand has pushed traffic 3-4% above the pre-crisis levels of early 2008.
Demand in 2010 is expected to grow by 11% (stronger than the previous
forecast of 10.2%) while capacity will only expand by 7.0% (up from the
previous forecast of 5.4%).
Yields: Yield improvements are
the most important factor driving the improved outlook. On top of last
year’s capacity cuts, capacity expansion is lagging behind demand
improvements. The result is higher load factors and some pricing power
for airlines. More business travelers on premium seats are also boosting
average yields. Yields are now expected to grow by 7.3% for passenger and
7.9% for cargo. This is sharply higher than the 4.5% previously projected
for both. Even with this improvement, yields are still 8% below the
pre-crisis levels of 2008.
Revenues: Revenues are expected
to grow to $560 billion, $15 billion more than previously forecast. This
is only slightly below the $564 billion in revenues achieved in 2008 when
the previous economic cycle peaked and prior to the start of the
financial crisis.
Fuel:
The revised outlook maintains an average full-year crude oil price of
$79/barrel. However, excess refinery capacity is pushing the “crack
spread” slightly lower than previously anticipated resulting in lower prices
for jet fuel. Even with stronger traffic the total fuel bill is now
forecast to be $137 billion, $3 billion lower than forecast in June. Fuel
continues to account for about 25% of industry costs.
Regional Profiles
While all regions except Africa showed improved prospects
compared to the previous forecast, sharp differences remain.
Asia-Pacific: Asia-Pacific carriers
are expected to post a $5.2 billion profit. This is better than the $3
billion recorded during the previous peak in 2007 and double the previously
forecasted $2.2 billion. The strong improvement is based on strong market
growth and yield gains. Renewed buoyancy in air freight markets has
been particularly important for airlines in this region, where it can
represent up to 40% of revenues. The 23.5% improvement in high volume
intra-Asia premium traffic, due to a surge in business travel, is another
of the driving factors.
Europe: Compared the June
forecast, the prospects for Europe’s carriers improved from a loss of
$2.8 billion to a loss of $1.3 billion. The gains are largely attributed
to traffic into Europe, boosted by the low currency which has stimulated
exports and improved the air cargo business. Continuing economic weakness
in the European economy and faltering consumer confidence continues to
depress originating passenger traffic.
North America: North American carriers
are now forecast to make $3.5 billion (up from $1.9 billion). US
airlines cut capacity significantly as fuel prices spiked in 2008 and
maintained a cautious approach to reinstating capacity to the market this
year. The US economy and the resulting freight and air travel growth have
grown at a better pace than in Europe. As a result, US airlines have seen
a much larger rise in yields than other regions.
Latin America: Latin American carriers
continue to benefit from very strong regional economic growth
particularly in the south of the region, boosting freight, travel and
profits. The profit forecast has improved slightly from $900 million to
$1.0 billion.
Middle East: Middle Eastern airlines
have benefitted from strong regional economies and an expanded share of
long-haul markets. Unlike the previous two years, capacity has been added
at a slower pace than demand growth in 2010, raising load factors and
helping profitability. Carriers in the region are expected to see their
profits rise significantly from $100 million to $400 million.
Africa: Prospects for African
airlines remain unchanged from the previous forecast at $100 million
profits.
Looking Ahead To 2011
The industry outlook grows weaker in 2011. The impact of
the post-recession bounce from re-stocked inventories will dissipate.
Consumer spending is not expected to pick-up the slack as joblessness
remains high and consumer confidence falls in Europe and North America.
Travel and freight markets will remain stronger in regions such as Asia,
the Middle East and South America but we do not expect these hot spots to
be able to sustain global growth in 2011. Slower growth is expected to
keep costs in check and oil prices are expected to remain constant at
$79/barrel. Industry growth is expected to fall back to 5%, in line with
the historical trend. But a surge of aircraft deliveries (1400) will fuel
capacity expansion of 6%—in excess of expected demand improvements.
Falling load factors will remove the possibility for further yield
improvement leading to a more challenging revenue environment.
“This year (2010) is as good as it gets for this cycle.
Governments are running out of cash for pump priming. Unemployment
remains high and business confidence is weakening. And we expect the 3.2%
GDP growth of 2010 to drop to 2.6% in 2011. As a result, 2011 is looking
more austere. We see profitability falling to $5.3 billion with a margin
of 0.9%,” said Bisignani.
View
Giovanni Bisignani's speech
Full
Financial Forecast
- IATA -
For more information, please contact:
Anthony Concil
Director Corporate Communications
Tel: +41 22 770 2967
Email: corpcomms@iata.org
Notes for Editors:
- IATA
(International Air Transport Association) represents some 230
airlines comprising 93% of scheduled international air traffic.
- We have
launched a Twitter account specially catered for the media. Follow
us now at http://twitter.com/iata2press
for the latest industry updates.
|
