Airline profits grow in 2013, but at a slower pace: IATA

MONTREAL — IATA has revised its 2013 global industry outlook downwards to $11.7 billion on revenues of $708 billion.

Airline performance continued to improve in the second quarter, however at a slower pace than was expected with the previous projection (in June) of $12.7 billion.

This reflects the impact on demand of the oil price spike associated with the Syrian crisis and disappointing growth in several key emerging markets, says IATA.

Performance in 2013 is “considerably better” than the $7.4 billion net profit of 2012, says the organization, adding the upward trend should continue into 2014 when airlines are expected to return a net profit of $16.4 billion.

This would make 2014 the second strongest year this century after the record breaking $19.2 billion profit in 2010.

“Overall, the story is largely positive. Profitability continues on an improving trajectory. But we have run into a few speed bumps. Cargo growth has not materialized. Emerging markets have slowed. And the oil price spike has had a dampening effect. We do see a more optimistic end to the year. And 2014 is shaping up to see profit more than double compared to 2012,” said Tony Tyler, IATA’s Director General and CEO.

Airline performance remains strong. This year, airlines are expected to post the same operating margin (3.2%) as in 2006, even with a 54% hike in jet fuel prices.

The industry has been able to absorb this enormous cost increase as a result of changes in the industry structure (through consolidation and joint ventures), increased ancillary sales and reduced new entry due to tight financial markets, said Tyler.

The industry is expected to have a relatively good year even with global economic growth at 2%. Previously 2% gross domestic product (GDP) growth was considered the point below which airlines posted losses.

North American airlines are expected to post the strongest performance at $4.9 billion profits (up from the previously forecast $4.4 billion) for an Earnings Before Interest and Taxes (EBIT) margin of 4.3%. This is more than double the $2.3 billion profit of 2012.

European airlines are expected to record profits of $1.7 billion (up from the previously expected $1.6 billion).

The outlook for Asia-Pacific airlines, meanwhile, has been downgraded by $1.5 billion to $3.1 billion profits largely driven by slower growth among the region’s emerging economies.

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