Fuel costs hit profit forecasts but airlines still on track to outperform 2013 results

Issues & Trends – March 2014

Fuel costs hit profit forecasts but airlines still on track
to outperform 2013 results

AIRLINE profit predictions have been revised downwards for 2014 but should still be up on 2013, according to the latest IATA forecasts.

The world airline body has blamed higher fuel prices for a billion dollar write down of projected airline profits for this year from $US19.7 billion to $US18.7 billion. Oil price rises are now expected to add $US3 billion to the industry’s fuel bill but IATA is predicting this will be largely offset by stronger demand.

“In general, the outlook is positive,” said IATA director general Tony Tyler.

“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.”

The aviation industry retains on average $US5.65 per passenger in net profit. This is improved from $US2.05 in 2012 and $US4.13 in 2013. But it is below the $US6.45 achieved in 2010.

Slamming “high taxes, insufficient infrastructure and onerous regulation” in many parts of the world, the IATA boss said: “We still need governments to understand the link between aviation-friendly policies and broader economic benefits.”

IATA is forecasting passenger demand growth of 5.8 per cent this year, slightly weaker than the previously forecast six per cent but an improvement on the 5.3 per cent actual growth achieved in 2013. Passenger yields however are expected to deteriorate by 0.3 per cent.

Ancillary revenues are continuing to grow in importance for airlines. According to the IATA forecasts:

“The average fare per departing passenger is expected to be about $181. Ancillary services may add almost $US14 on top of this.”

Against this background IATA is continuing to work on its New Distribution Capability (NDC).
This was once controversial but, as the IATA forecast statement notes: “Industry consensus continues to build on the need for the NDC.

“Pilot projects continue to be launched in anticipation of the expected US Department of Transportation approval later this year.”


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