Profit forecast up but airline industry remains on knife edge'

Giovanni Bisignani. File photo / Supplied

Forecast profit for the air transport industry has jumped but the sector is on a knife edge, according to the International Air Transport Association.

IATA has raised its industry outlook for 2010 to a net profit of US$15.1 billion ($20.25 billion), up from the US$8.9 billion forecast in September, while the forecast for 2011 was US$9.1 billion, up from US$5.3 billion.

Director-general and chief executive Giovanni Bisignani said the increased projections were based on an exceptionally strong third-quarter performance. "Margins remain pathetic," he said. "With a 2.7 per cent margin in 2010 shrinking to 1.5 per cent in 2011, we are nowhere near covering our cost of capital."

Bisignani said any increase in profits was a welcome step in the right direction.

"But the fact that we can increase our profit forecast by 70 per cent and still be left with a net margin of just 2.7 per cent shows just how far this industry has to go to achieve a normal level of profitability."

IATA saw the recovery pausing next year after a strong post-recession rebound.

"And the two-speed nature of the recovery is unchanged, with European airlines continuing to underperform other regions," Bisignani said.

The industry was fragile and balancing on a knife edge, he said.

"Any shock could stunt the recovery, as we are seeing with the results of new or increased taxation on airlines and travellers in Europe."

The third quarter of 2010 was exceptionally positive in terms of passenger traffic volume and airlines had met increased demand by more intensely utilising their fleets, the IATA chief said.

"Fixed costs remained constant, passenger yields firmed and the increased revenues went almost directly to the bottom line."

Prospects for air cargo had deteriorated with expected demand growth of 18.5 per cent down from the 19.8 per cent forecast in September

"The post-recession rebound drove a rapid expansion for cargo earlier in the year but it ran out of steam by the third quarter," Bisignani said.

"Since May, overall volumes fell by 5 per cent.

"This will only pick up when consumers have bought the products that are already on the shelves."

The recovery cycle would pause next year, he said.

"Although the US$9.1 billion profit projection for 2011 is better than we had previously forecast, next year the industry will face tougher conditions than what we are experiencing today."

The average oil price was expected to rise to US$84 a barrel for 2011, up from US$79 this year, while the expected growth in global gross domestic product of 3.5 per cent in 2010 would slow to 2.6 per cent.

IATA said increased taxation in some European countries was increasing the cost of travel by between 3 and 5 per cent, which was enough to discourage travel and slow industry recovery.

Up ahead

US$565b of revenue.
US$15.1b of net profit.
8.9 per cent passenger traffic growth.
Recovery cycle will pause next year.