IATA has 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, IATA
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.
Forecast Highlights for
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% (up from the previous forecast of 5.4%).
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.
regions except Africa showed improved prospects compared to the
previous forecast, sharp differences remain.
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.
to 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
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
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 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 - 2011
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
“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.
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