IATA raises profit forecasts

December 14, 2012 - 7:08:21 am

GENEVA: Global airlines raised industry profit forecasts yesterday on the back of cost cuts and consolidation, but warned of a cocktail of risks including the euro zone crisis and US fiscal concerns.

The International Air Transport Association, which represents 240 airlines, said the industry would make a collective profit of $6.7bn in 2012, up from a previous forecast of $4.1bn. In 2013, profits are expected to improve to $8.4bn, up from a previous forecast of $7.5bn, IATA said. The improved outlook is driven mainly by belt-tightening and consolidation in North America in the face of what the airlines body described as a slowing world economy. 

Carriers there are expected to make a total of $2.4bn in 2012, up sharply from $1.7bn last year, as airlines fly their planes with fewer empty seats and for more hours a day. In Europe, airlines are no longer expected to post a combined loss this year but will merely break even, IATA said.

Asia continues to post sharp growth with profits of $3bn expected this year despite concerns over a slowdown of growth in China and exposure to a weak cargo market.

Cargo markets, a barometer of world trade, are stagnant but may pick up in 2013 amid some signs of improved US demand for consumer goods that tend to go by air, IATA officials said.

Airline activity is traditionally seen as a bellwether for the wider economy, with business confidence translating rapidly into demand for premium seats and just under half of global trade by value travel ling by air. “The US economy is growing but the threat of the fiscal cliff has not been eliminated,” said IATA Chief Economist Brian Pearce, referring to the potential impact of steep tax hikes and federal spending cuts budget cuts scheduled to take effect on January 1. 

Pearce said world economy as measured by global industrial production was slowing down. International air travel closely tracks industrial production, a broad-based measure of economic activity and one of the most timely, Pearce said. Europe’s economic crisis is “far from solved,” he said, something that could increase pressure on airlines there to consolidate. “There are opportunities for further consolidation in Europe,” said IATA Director General Tony Tyler, noting the presence of three clusters led by Air France-KLM, Lufthansa and British Airways-Iberia.

“Europe has a lot of airlines. One would expect those three groups would have a gravitational attraction to smaller carriers who find economic conditions too difficult to operate independently,” Tyler told reporters. 

However a shortage of finance caused by the region’s economic crisis could slow the process down, he added.

Meanwhile, European planemaker Airbus said yesterday that Malaysian group AirAsia was the customer behind a previously announced order for 100 A320 aircraft worth around $9.4bn at list prices. The deal, which provides AirAsia with an additional 64 A320neo and 36 A320ceo aircraft, was formally unveiled at Airbus’s wing assembly plant in Broughton, Wales, in the presence of British Prime Minister David Cameron. The contract will safeguard 1,500 Airbus jobs in Britain and 7,500 in the group’s wider supply chain, Cameron’s office said.

“This is excellent news and a tremendous boost for the workforce and for UK manufacturing,” Cameron said in a statement.

“Today’s announcement demonstrates the strength of the UK aerospace sector and the important role it plays in growing and rebalancing our economy.” Alongside AirAsia’s chief executive Tony Fernandes, Cameron toured the Broughton plant, which employs over 5,000 people and will be making the wings of the aircraft.Reuters