IATA: European loss forecast almost doubles; next months critical

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Published: June 12, 2012

European carriers are expected to report combined losses of $ 1.1 billion for the year, almost double the previous forecast of a $ 600 million loss, according to IATA.

Releasing its revised 2012 industry outlook in Beijing during its annual meeting and summit, IATA said global industry profits are expected to be $ 3 billion, unchanged from the last update in March (ATW Daily News, March 21). A fall in oil prices, stronger than expected growth in passenger traffic, and a bottoming out of the freight market are driving some improvements in the profitability outlook. However, this is offset by the continued and deepening European debt crisis.

“The $ 3 billion industry profit forecast has not changed, but almost everything in the equation has. Demand has been better than expected, so far this year. And fuel prices are now lower than previously anticipated, but that’s on the expectation of economic weakness ahead. The eurozone crisis is standing in the way of improved profitability and we continue to face the prospect of a net profit margin of just 0.5%,” IATA DG and CEO Tony Tyler said.

This will be the second year of declining returns since airline profits peaked in 2010 at $ 15.8 billion with a net profit margin of 2.9%. In 2011, industry profits fell to $ 7.9 billion for a 1.3% net profit margin, IATA said.

The outlook for North American and Latin American carriers has improved. North American carriers are expected to post a profit of $ 1.4 billion, up from the March projection of $ 0.9 billion and a slight improvement on the $ 1.3 billion made in 2011. Tight capacity management is the driving factor, according to IATA. Latin American carriers are expected to post profits of $ 0.4 billion, a $ 0.3 billion improvement compared with the March projections.

Asia-Pacific carriers are expected to make the largest contribution to industry profits ($ 2 billion), even with a $ 0.3 billion downgrade from the previous outlook due to the weak first-quarter performance. This is less than half the $ 4.9 billion profit that the region delivered in 2011.

Middle East carriers are expected to post profits of $ 0.4 billion, down from the March projection of $ 0.5 billion. This is a significant drop compared with 2011, when the region’s carriers returned a profit of $ 1 billion. The outlook for African carriers is unchanged with an expected loss of $ 0.1 billion. This is a downgrade on the breakeven performance in 2011.

Given the slower economic growth environment, IATA noted that until April, RPKs continued to expand at an above-trend rate of 6%. However, a weaker second half of the year is expected as deepening problems in Europe damage confidence. Even so, the strength of travel demand in the first part of this year has caused an upward revision to the forecast for air travel growth to 4.8% from 4.2% in the previous forecast. Passenger numbers are expected to reach 2.966 billion this year, up from 2.835 billion in 2011.

Cargo demand has bottomed out, following a sharp fall in 2011, in line with the moderate improvement of business confidence in a number of economies outside Europe. But the upturn is weak and narrowly based, IATA said, with only Middle Eastern airlines seeing significant volume gains. European economic weakness is expected to limit any further improvement. Overall, 47.8 million tonnes of freight are expected to be shipped by air in 2012, unchanged from the 47.7 million tonnes carried in 2011.

“There has been no let-up in the volatility of the economic environment. A few months ago, an oil price crisis was the biggest risk. Now all eyes are back on Europe,” Tyler said. “The next months are critical and the implications are big,” he said.

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