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Business News/ Companies / News/  IATA raises profit forecast for global airlines
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IATA raises profit forecast for global airlines

Airlines likely to make a net profit of $10.6 billion this year, up from an earlier forecast of $8.4 billion

The association noted that airline stocks have climbed 7% so far in 2013, despite a 5% rise in the price of jet fuel. Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint)Premium
The association noted that airline stocks have climbed 7% so far in 2013, despite a 5% rise in the price of jet fuel. Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint)

Mumbai: The International Air Transport Association (IATA) raised its projection for the combined post-tax profit of airline companies to $10.6 billion (around 57,664 crore today) from an earlier estimate of $8.4 billion on economic optimism although the euro zone crisis may upend growth forecasts and fuel costs would act as a drag.

It pegged the combined post-tax profit margin at 1.6%, slightly more than its previous estimate of 1.3% in an announcement on Wednesday.

“Industry profits are taking a small step in the right direction," said Tony Tyler, director general and chief executive officer of the lobby group that represents some 240 airlines that account for 84% of global air traffic. “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."

IATA said confidence was rising due to several factors including better GDP growth forecasts for 2013 and a structural improvement in the airline industry’s financial performance, as reflected by a 7% increase in share prices since the beginning of the year, despite a 5% increase in fuel costs.

There are considerable risks that could derail recovery, it said. This includes the uncertainty in Europe currently exemplified by the crisis that has gripped Cyprus. This is a clear indicator that the euro zone crisis is not over and could take a turn for the worse, IATA said.

“European Central Bank commitments with respect to the euro zone crisis and the slow economic recovery in the US should be pointing us towards a durable, if weak, upswing," Tyler said in the IATA release. “But we have had two false starts already. Improving conditions in early 2011 and 2012 disintegrated as the euro zone crisis intensified. And it could happen again. The impact of the unfolding situation in Cyprus is a risk factor that cannot be ignored."

Jet fuel is now expected to average $130 a barrel for the year (up from $124.3 a barrel projected in December). And the fuel bill will grow to $216 billion, a $6 billion increase over December’s expectations. Overall, fuel will account for 33% of airline costs, unchanged from 2012, IATA said.

IATA said Asia-Pacific airlines are expected to deliver the largest absolute contribution to industry performance with a $4.2 billion net profit expected for 2013 (up from the $3.2 billion previously projected and from the $3.9 billion reported for 2012).

Asian carriers account for about 40% of the air cargo market and will be the biggest beneficiaries of the expected upturn in demand. Carriers in the region are expected to see average demand growth of 4.9%, slightly outpaced by a 5% capacity expansion.

“The improvements in industry profitability are encouraging. But they must be kept in perspective. We are projecting that airlines will make a net profit of $10.6 billion on $671 billion in industry revenue," Tyler said.

“By comparison, last year, Nestle, a single company, made over $11.5 billion in profit on a revenue of about $100 billion. Chronic anaemic profitability is characteristic across most of the aviation value chain when compared with other sectors. It will require more than improving economic conditions to fix. Neither the challenges nor the benefits of doing so should be underestimated," he said.

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Published: 20 Mar 2013, 05:06 PM IST
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