Prospects brighter for airlines in 2013 after better than expected 2012

Issues & Trends – December 2012 / January 2013

Prospects brighter for airlines in 2013 after better than expected 2012

THINGS are looking up for airlines in 2013, according to IATA – although the world airline body warns that carriers continue to face a challenging environment.

IATA has revised its industry financial outlook upwards, predicting airlines’ collective profits will amount to $US6.7 billion in 2012.

That is more than 50 per cent up on a forecast of $US4.1 billion as recently as October but still well below the $US8.8 billion achieved in 2011.

In 2013 profits are expected to climb another 23.5 per cent to $US8.4 billion – almost back to 2011 levels and a significant improvement on the October forecast of $US7.5 billion.

“Industry net post-tax margin, however, will remain weak at 1.0 per cent in 2012 and 1.3 per cent in 2013,” IATA says.

The improved 2012 results are being driven by strong airline performance in the second and third quarters, according to IATA which comments: “Despite high fuel prices and a slowing world economy, airline profits and cash flows held up at levels similar to 2006 when oil prices were about $45 per barrel lower and world economic growth was four per cent.”

Historically, when GDP growth has fallen below two per cent the airline industry has returned a collective loss.

“With GDP growth close to the ‘stall speed’ of two per cent and oil at $US109.50 per barrel we expected much weaker performance,” said IATA director general and chief executive Tony Tyler. “But airlines have adjusted to this difficult environment through improving efficiency and restructuring. That is protecting cash flows against weak economic growth and high fuel prices.”

Asia-Pacific carriers are expected to post a net profit of $US3 billion in 2012 ($US700 million up on the October forecast).

The region will deliver the world’s largest aggregate profit while the EBIT margin of 2.9 per cent ranks second behind North America.

On the downside, the region’s carriers will see the largest absolute fall in profits compared to 2011 when Asia-Pacific airlines returned a profit of $US5.4 billion. “The region is under pressure from slower economic growth in China,” says IATA.

While noting that airlines are “moving in the right direction”, Tyler warns 2013 is shaping up as “another tough one for the industry”.

Asia-Pacific airlines are expected to see net profits grow by $US200 million to $US3.2 billion in 2013.

This will be the world’s second highest absol-ute profit, while EBIT margins for Asia Pacific airlines are expected to outstrip the rest of the world, growing significantly to 4.7 per cent.

“Economies in this region remain the most dynamic,” says IATA.



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