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IATA predicts slight upturn in aviation profitability

IATA predicts slight upturn in aviation profitability

The International Air Transport Association (IATA) has announced a modest improvement in its outlook for the 2013 financial performance of the global airline industry primarily based on stronger revenues.

IATA now expects airlines to produce a combined net post-tax profit margin of 1.6 per cent (up from the previously forecast 1.3 per cent) with a net post-tax profit of $10.6 billion (up from the previously projected $8.4 billion).

“Industry profits are taking a small step in the right direction.

“Against a backdrop of improved optimism for global economic prospects passenger demand has been strong and
cargo markets are starting to grow again.

“The economic optimism is also pushing fuel prices higher.

“We are seeing a $12 billion improvement in revenue, and a $9-10 billion increase in costs - most of which is related to fuel,” said Tony Tyler, IATA director general.

Confidence in the airline industry is rising around several factors:

  • GDP growth forecasts for 2013 have been upgraded to 2.4 per cent, a significant improvement from the 2.1 per cent in 2012.
  • It appears that the bottom of the global industrial production cycle was reached in the third quarter of 2012 after which there has been six months of increasing output and improvements to business confidence.
  • There is a structural improvement in the airline industry’s financial performance as recognized by a seven per cent increase in share prices since the beginning of the year, despite a five per cent increase in fuel costs.

Risks and Volatility

IATA noted that considerable risks remain which could derail recovery.

The outlook is based on evidence of growing business confidence.

But the controversy over the draconian bailout proposal for Cypriot financial institutions is a clear indicator that the
Eurozone crisis is not over and could take a turn for the worse.

“European Central Bank commitments with respect to the Eurozone crisis and the slow economic recovery in the
US should be pointing us towards a durable, if weak, upswing.

“But we have had two false starts already.

“Improving conditions in early 2011 and 2012 disintegrated as the Eurozone crisis intensified. And it could happen again.

“The impact of the unfolding situation in Cyprus is a risk factor that cannot be ignored,” said Tyler.