Air cargo profits rise, but Europe still mired in red: IATA

THE International Air Transport Association (IATA) upwardly revised its 2010 industry outlook and is now projecting a profit of US$8.9 billion - up from its far gloomier $2.5 billion forecast in June.

But the gloom of its predictions over the last year persists, suggesting that industry-wide profit will drop to $5.3 billion next year.

"This year (2010) is as good as it gets. Governments are running out of cash for pump priming. Unemployment remains high and business confidence is weakening," said IATA director general and CEO Giovanni Bisignani.

"And we expect the 3.2 per cent GDP growth of 2010 to drop to 2.6 per cent in 2011. As a result, 2011 is looking more austere. We see profitability falling to $5.3 billion with a margin of 0.9 per cent," said Mr Bisignani.

But the IATA chief conceded that the industry recovery has been stronger and faster than predicted. "But 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 per cent margin. This is below the 2.5 per cent margin of the previous cycle peak in 2007 and far below what it would take just to cover our cost of capital."

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 per cent of revenues.

The overall improved outlook for 2010 is being driven by a combination of factors. On the revenue side increasing demand and disciplined capacity management are leading to sharply stronger yields pushing revenues higher. At the same time, costs remain relatively stable, said the IATA statement.

Demand and capacity forecast for 2010 suggests rapidly improving demand has pushed traffic 3-4 per cent above the pre-crisis levels of early 2008. Demand in 2010 is expected to grow by 11 per cent (stronger than the previous forecast of 10.2 per cent) while capacity will only expand by seven per cent (up from the previous forecast of 5.4 per cent).

Europe's prospects improved from a loss of $2.8 billion in June to a loss of $1.3 billion. The gains are largely attributed to traffic into Europe, boosted by the low currency that has stimulated exports and improved the air cargo business.

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 other regions.

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 Eastern airlines have benefited 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.

Prospects for African airlines remain unchanged from the previous forecast at $100 million profits.

The 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.
(Source:www.schednet.com)