IATA boosts forecast for air demand growth

By David Jonas

The International Air Transport Association's newest financial forecast, released Wednesday, includes larger 2013 industry profits for most global regions than had been predicted in December.

The "modest" improvements were based "primarily on stronger [projected] revenues" brought about by "evidence of growing business confidence," according to IATA.

The association now projects worldwide passenger demand to grow 5.4% this year and passenger yield to inch up 0.4%.

"The growth in [passenger] demand despite economic uncertainty in Western economies has been one of the more interesting developments of the last few years," according to IATA Director General Tony Tyler. "Travel demand has been supported by robust growth in the so-called emerging markets, reflecting a longer-term shift in the center of gravity of the industry."

IATA also projects global cargo demand to increase by 2.7% following two years of decline.

"It appears that the bottom of the global industrial production cycle was reached in the third quarter of 2012, after which there has been six months of increasing output and improvements to business confidence," according to the association.

Tyler added that "European Central Bank commitments with respect to the eurozone crisis and the slow economic recovery in the U.S. should be pointing us towards a durable, if weak, upswing."

In North America, IATA projects airlines as a group to produce $3.6 billion in profits in 2013, up from the previous forecast of $3.4 billion and easily above the $2.3 billion in profits achieved during 2012. IATA cited a forecasted demand increase of 1.3% and "tight management of capacity in response to the high fuel cost environment."

The association now forecasts European carriers as a group to realize 2013 net profits of $800 million. IATA in December projected break-even performance for the region.

"The European domestic market continues to be weak, reflecting recessionary conditions across the continent," IATA wrote. "However, airlines are expected to show stronger performance on long-haul routes to emerging markets."

Carriers in the Asia/Pacific region are expected to post aggregate profits of $4.2 billion, up $1 billion from the previous forecast. They will "be the biggest beneficiaries of the expected upturn in cargo demand," according to IATA.

The association also raised profit forecasts for Middle Eastern and African carriers to $1.4 billion and $100 million, respectively.

Latin America is the only region for which IATA lowered the profit forecast, down $100 million to $600 million, owing to slower growth "in response to earlier losses in volatile domestic markets."

Overall, IATA now projects the global airline industry to generate 2013 net profits of $10.6 billion, up from the $8.4 billion forecast in December, with worldwide revenues increasing by $12 billion to $671 billion. The aggregate after-tax margin now is predicted to be 1.6%, up from the previous forecast of 1.3%.

"Chronic anemic profitability is characteristic across most of the aviation value chain when compared to other sectors," according to Tyler. "It will require more than improving economic conditions to fix. With a 1.6 % net profit margin, there is very little buffer between profit and loss."

Fuel prices in particular remain concerning. IATA currently projects an average 2013 price of $130 for a barrel of jet fuel, up from the previous forecast of $124.

Source: Business Travel News

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