The International Air Transport Association (IATA) announced that the airline industry remains on track to deliver a second consecutive year of improved profitability. This is despite a slight downward revision to its industry outlook for 2014 to an industry profit of US$18.7 billion from the previously forecast US$19.7 billion.
The main driver of the downward revision is higher oil prices which are now expected to average US$108.0/barrel (Brent) which is US$3.5/barrel above previous projections. The $3 billion added cost on the industry’s fuel bill is expected to be largely offset by stronger demand, especially for cargo, which is being supported by a strengthening global economy. Overall industry revenues are expected to rise to US$745 billion (US$2 billion greater than previously projected).
“In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geo-political instability. Overall industry returns, however, remain at an unsatisfactory level with a net profit margin of just 2.5 per cent,” said Tony Tyler, Director General and CEO, IATA.
The aviation industry retains on average US$5.65/passenger in net profit. This is improved from US$2.05 in 2012 and US$4.13 in 2013. But it is below the US$6.45 achieved in 2010.
“The efficiencies of improved industry structure through consolidation and joint ventures is providing more value to passengers and helping airlines to remain profitable even in difficult trading conditions. But we still need governments to understand the link between aviation-friendly policies and broader economic benefits. In many parts of the world the industry’s innate power to drive prosperity through connectivity is compromised by high taxes, insufficient infrastructure and onerous regulation,” said Tyler.
IATA outlook forecasts are estimates of the aggregate performance of the global air transport sector and should not be taken as an indicator of individual airline performance which can vary greatly in magnitude and direction from the global outlook.
Asia-Pacific airlines are expected to post profits of US$3.7 billion and an EBIT margin of 3.4 per cent. This is an improvement over 2013, helped by a slightly better outlook for cargo markets. Airlines in this region have the largest share of the international air cargo market. However, the turmoil in foreign exchange markets earlier this year has adversely affected growth prospects for large economies in the region like India and Indonesia. Even China has slowed, albeit to a much lesser extent. The resulting adverse impact on passenger revenues more than offsets the improvement in cargo. The forecast for the profits of airlines in this region in 2014 is US$400 million less than the previous projection.
