IATA hikes aviation sector's profit outlook for this year to $15.1 billion

MANILA, Philippines – The International Air Transport Association (IATA) has revised upwards its aviation industry outlook for 2010 to a net profit of $15.1 billion from its $8.9-billion forecast in September.

Similarly, the group raised its projections for 2011 to a net industry profit of $9.1 billion, up from the $5.3 billion forecast in September. Net margins remain weak at 2.7 percent for 2010, falling to 1.5 percent in 2011.

IATA represents some 230 airlines, including those from the Philippines, comprising 93 percent of scheduled international air traffic.

“Our profit projections increased for both 2010 and 2011 based on an exceptionally strong third quarter performance. But despite higher profit projections, we still see the recovery pausing next year after a strong post-recession rebound. And the two-speed nature of the recovery is unchanged with European airlines continuing to underperform other regions,” IATA director general Giovanni Bisignani said.

Bisignani also characterized the improvements in terms of profit margins, which continue to disappoint. “Margins remain pathetic. With a 2.7 percent net margin in 2010 shrinking to 1.5 percent in 2011, we are nowhere near covering our cost of capital. The industry is fragile and balancing on a knife edge. Any shock could stunt the recovery, as we are seeing with the results of new or increased taxation on airlines and travelers in Europe,” he added.

The $6.2-billion increase in IATA’s projection for the 2010 net profit (compared to the September forecast) is equal to just 1.1 percent of the industry’s projected $565 billion in revenues.

“Any increase in profits is a welcome step in the right direction. But the fact that we can increase our profit forecast by 70 percent and still be left with a net margin of just 2.7 percent shows just how far this industry has to go to achieve a normal level of profitability,” Bisignani said.

Major drivers for the improved 2010 forecast are the passenger traffic growth of 8.9 percent (compared to previous 7.7 percent forecast), strong passenger yield growth of 7.3 percent (unchanged from the previous forecast), revenue growth to $565 billion (an improvement of $5 billion on the previous forecast), and average annual oil price in line with previously projected $79 per barrel.

“The third quarter of 2010 was exceptionally positive in terms of passenger traffic volume. Airlines met increased demand by utilizing their fleets more intensely. Fixed costs remained constant, passenger yields firmed and the increased revenues went almost directly to the bottom line,” Bisignani said.

In sharp contrast to improved conditions for air travel, the prospects for air cargo deteriorated from the September forecast. Demand is now expected to grow by 18.5 percent (compared to the previously forecast 19.8 percent), limiting yield growth to seven percent (below the previously forecast 7.9 percent).

“The post-recession rebound drove a rapid expansion for cargo earlier in the year but it ran out of steam by the third quarter. Since May, overall volumes fell by five percent. This will only pick up when consumers have bought the products that are already on the shelves,” Bisignani said.

For next year, he noted that the recovery cycle will pause. “Although the $9.1 billion profit projection for 2011 is better than we had previously forecast, next year the industry will face tougher conditions than what we are experiencing today,” he emphasized.