Airline profit tipped to rise

Forecasts indicate slightly stronger economic growth and lower oil prices

Improved performance is helping cushion airlines in a tough environment with profits forecast to climb next year, the International Air Transport Association says.

"Airlines are keeping their heads above water better than we expected," said Tony Tyler, IATA's director general and chief executive.

Carriers are expected to earn US$4.1 billion ($4.94 billion) this year - up US$1.1 billion from the US$3.0 billion forecast in June.

The revision by the association - which represents 240 of the world's biggest airlines - will still see the industry's net profit margins fall from 1.4 per cent in 2011 to 0.6 per cent.

But profits are expected to climb modestly to US$7.5 billion, as forecasts point to slightly stronger economic growth and lower oil prices. "That's a better result than 2012 but with a profit margin of only 1.1 per cent of revenues, it still represents a return on capital far below other industries," Tyler said.

This would help fuel passenger traffic expansion of 4.5 per cent and cargo expansion of 2.4 per cent.

Tyler said the impact of the European sovereign debt crisis lingered, China continued to moderate its growth and the impact of recent quantitative easing in Japan and the US would take time to yield growth.

Separately, Air New Zealand is forecasting its underlying profit will double to $180 million over the current year, assuming demand and oil prices stay around the same levels.

Tyler said better airline performance was evident in second-quarter results, which showed operating profits close to those of the previous year, following a tough first quarter.

The evidence showed consolidation was producing positive results. However, less cargo was being carried, adversely affecting Asia-Pacific air-lines in particular, where this business was a larger share of total revenues.

"Even six years ago, generating a profit with oil at US$110 a barrel would have been unthinkable. The industry has reshaped to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating," he said. "But the industry's profitability balances on a knife-edge," said Tyler.

On the horizon

Passenger Growth

Demand is expected to grow by 5.3 per cent over the course of 2012, which is 0.5 percentage points better than was forecast in June. Over the first eight months of 2012 passenger demand has increased by 1.4 percentage points ahead of capacity.

Cargo

Demand has fallen into negative territory from the 0.3 per cent expansion anticipated in June. Cargo is expected to finish the year with a 0.4 per cent contraction on 2011 levels.