Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Oil spike trims forecast profit of airline sector

Expected industry earnings cut by US$1 billion but still up on last year.

Tony Tyler says the industry is expected to have a good year. Photo / Brett Phibbs
Tony Tyler says the industry is expected to have a good year. Photo / Brett Phibbs

Forecast airline profits around the world have been revised down as a result of the oil price spike stemming from the Syrian crisis and disappointing growth in several key emerging markets. Returns are forecast to climb next year.

The International Air Transport Association's latest global industry outlook finds profits this year are expected to be US$11.7 billion on revenues of US$708 billion - down from the US$12.7 billion profit forecast in June.

The association said performance continued to improve in the second quarter but at a slower pace than was expected with the previous projection in June.

Performance in 2013 is considerably better than the US$7.4 billion net profit of 2012.

The improving trend should continue into the next calender year when airlines are expected to return a net profit of US$16.4 billion, although still short of the record US$19.2 billion profit in 2010.

In this region Air New Zealand made a profit of $182 million for the year to the end of June, Qantas $5.6 million and Virgin Australia a $110 million loss.

IATA's director-general and chief executive Tony Tyler said the overall story was positive.

"Profitability continues on an improving trajectory but we have run into a few speed bumps."

Cargo growth has not materialised and growth in emerging markets has slowed.

This year, airlines are expected to post the same operating margin of 3.2 per cent they made in 2006 in spite of a 54 per cent increase in jet fuel prices.

"The industry has been able to absorb this enormous cost increase as a result of changes in the industry structure, increased ancillary sales and reduced new entry due to tight financial markets."

Tyler said the industry was expected to have a relatively good year even with global economic growth at 2 per cent which was previously thought to be the level that tipped airlines into loss.

Airline profits generally followed broad economic trends and an acceleration of economic activity had not yet materialised as expected.

Within that overall trend there had been an acceleration of improvements in developed markets, particularly the United States and slowing growth in some key emerging markets including India, Brazil and China.

In the Asia-Pacific region the outlook has been downgraded by US$1.5 billion to US$3.1 billion of profit, largely because of slower growth among the region's emerging economies.

Asia-Pacific carriers are the largest players in global cargo markets and the most impacted by its flat performance. This has been somewhat offset by a strengthening domestic market in China.

The association expects robust passenger demand growth in the Asia-Pacific region of 6.6 per cent to be outstripped by a 6.9 per cent increase in capacity.

- NZ Herald

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