Airlines face profit drop

Airlines face profit drop

Middle East airlines continue to lead the industry in growth, but are expected to post profits of $400 million in 2012, lower than projected earlier this year, according to the International Air Transport Association, or Iata, the industry’s global body.

By Issac John

Published: Tue 12 Jun 2012, 11:17 PM

Last updated: Tue 7 Apr 2015, 2:40 PM

The Iata described this latest projection as a significant drop compared with 2011, when the region’s carriers returned a profit of $1 billion. Along with the Middle East, the Iata has downgraded the outlook for European and Asia-Pacific and Middle Eastern carriers has been downgraded as the global industry profits are expected to drop to $3 billion in 2012, the second year of declining returns.

Global airline profits peaked in 2010 at $15.8 billion with a net profit margin of 2.9 per cent. In 2011, industry profits fell to $7.9 billion for a 1.3 per cent net profit margin. This year’s projected industry profit would yield a net profit margin of just 0.5 per cent.

Globally, 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 sovereign debt crisis, which has led markets to expect a further deterioration and damage to economic growth, the adverse impact of which has been built into this forecast,” the global body said in its revised outlook for the aviation industry.

The weakness of European originating traffic would damage long-haul markets, but Middle East airlines continue to lead the industry in growth, the Iata said at its annual general meeting in Beijing. “Along with capturing long-haul passenger traffic through the Gulf hubs, they have been the beneficiary of 80 per cent of the improvement in cargo markets during the past six months. Overall, capacity by the region’s carriers is expected to expand by 13.3 per cent, behind the 14.1 per cent growth in demand,” the industry forecast said.

“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 per cent,” Iata director-general and CEO Tony Tyler said.

“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. Markets are expecting the eurozone sovereign debt crisis to intensify and economic damage to follow. But with little clarity on how European governments will manage the situation beyond providing further liquidity, the risk of a major downward shift in economic prospects is very real. The next months are critical and the implications are big.”

Global 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, 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, basically unchanged from the 47.7 million tonnes carried in 2011,” the forecast said.

More news from Local Business