The International Air Transport Association (IATA) has sharply revised its expectations for global aviation in 2010, projecting a profit of $8.9 billion.
As late as June this year the IATA was predicting global profits of $2.5 billion, with the Montreal-based body surprised by the “stronger and faster” economic recovery.
“The $8.9 billion profit we are projecting will start to recoup the nearly $50 billion lost over the previous decade,” said IATA director general Giovanni Bisignani.
“But a reality check is in order. There are lingering doubts about how long this cyclical upturn will last.”
Mr Bisignani went to argue profit margins in the aviation industry are so thin increasing profits 3.5 times only generates a 1.6 per cent margin. This remains below the 2.5 per cent margin of the previous cycle peak in 2007 and, therefore, far below what it would take just to cover the cost of capital.
As a result the IATA, in its first look into 2011, estimated profitability would drop to $5.3 billion.
The 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.
IATA director general Giovanni Bisignani predicts a slowdown in 2011
Around the World
While all regions (except Africa) showed improved prospects according to the latest IATA forecasts, sharp differences remain.
Asia-Pacific carriers are now expected to post a $5.2 billion profit, up from $3 billion, with the strong improvement based on market growth and yield gains.
Similarly North American carriers are now forecast to make $3.5 billion, up from $1.9 billion. Airlines in the region have cut capacity significantly as fuel prices spiked in 2008 and maintained a cautious approach to reinstating capacity to the market.
In contrast, Europe’s carriers are still expected to lose $1.3 billion.
This is up from the $2.8 billion in losses predicted earlier this year, with gains largely attributed to traffic into Europe, boosted by the low currency which has stimulated exports and improved the air cargo business.
Ongoing economic weakness in the European economy and faltering consumer confidence continue to depress originating passenger traffic.
Despite the brief optimism generated by the IATA report today, the industry outlook grows weaker in 2011.
The impact of the post-recession bounce from re-stocked inventories will dissipate, while consumer spending is not expected to pick-up the slack as joblessness remains high and consumer confidence falls in Europe and North America, argued the IATA.
Slower growth is also expected to keep costs in check and oil prices are expected to remain constant at $79/barrel.
“This year is as good as it gets for this cycle,” continued Mr Bisignani.
“Governments are running out of cash for pump priming.”