Airlines’ profit to fall in Q2, signals IATA

Airlines’ profit to fall in Q2, signals IATA

Mumbai: Executives of international airlines expect the stress on profit to intensify in the second quarter of 2011 after it declined sharply in the preceding quarter, according to a business confidence survey by International Air Transport Association (IATA), which represents about 230 airlines, comprising 93% of scheduled international air traffic.

The July survey, conducted among chief financial officers and heads of the cargo divisions of IATA’s member airlines, shows that expectations of profit are high for the year ahead.

India’s three publicly traded airlines—Jet Airways, Kingfisher Airlines and SpiceJet—may have made losses in the quarter ended June, owing to high jet fuel prices, excess capacity and fierce competition for passengers, according to analyst estimates.

Following are the key points of the survey:

*The squeeze on profits seemed to intensify in the second quarter, but expectations for profits in the year ahead improved after the sharp decline in the April survey.

*Over the next 12 months, a small net balance of respondents expect improvement in profits.

*This is considerably better than the situation in the April survey, but shows airlines are still far less confident than they were in 2010.

*Linking the survey results to actual profit outcomes suggests that in April airlines were expecting losses, as in 2008, but are now expecting moderate profits.

*The improvement over April was driven by cost (fuel) expectations, which have diminished to an expectation of a small rather than a large rise.

*Only a small net balance of airlines expect to be able to raise passenger yields over the next 12 months, and cargo yields are not expected to rise.

*Airlines are confident that passenger and cargo markets will continue to expand.

*Airlines are continuing to hire as a result.

*While the April survey had shown airlines more bearish than IATA’s own forecasts, the July survey shows airlines are confident, in line with the forecast of $4 billion in post-tax profit this year.