Airline profits on rise

The International Air Transport Association (IATA) has announced an upward revision to its industry financial outlook. For 2013 airlines are expected to return a global net profit of US$12.9 billion. This is expected to improve to a net profit of US$19.7 billion in 2014. Both are improvements on the September forecast which anticipated an industry net profit of US$11.7 billion in 2013 increasing to US$16.4 billion in 2014.

The upward revision reflects lower jet fuel prices over the forecast period as well as improvements to the industry’s structure and efficiency already visible in quarterly results last year. Passenger markets continue to outperform the cargo business which remains stagnant both on volumes and revenues. IATA expects 2014 to be a second consecutive year of strengthening profitability (beginning from 2012 when airlines posted a net profit of US$7.4 billion).

Industry net profit margins, however, remain weak at 1.1 per cent of revenues in 2012, 1.8 per cent in 2013 and 2.6 per cent in 2014. Within this aggregate forecast for the entire industry, performance of individual airlines and regions will vary considerably. The anticipated US$19.7 billion profit in 2014 would come on projected revenues of US$743 billion. While this would be the largest absolute profit for the airline industry-outstripping the US$19.2 billion net profit that the industry returned in 2010 – it is important to note that 2010 revenues were US$579 billion.

The net profit margin in 2010 was 3.3 per cent, some 0.7 percentage points higher than the 2.6 per cent expected for 2014. “Overall, the industry’s fortunes are moving in the right direction. Jet fuel prices remain high, but below their 2012 peak. Passenger demand is expanding in the five to six per cent range-in line with the historical trend. Efficiencies gained through mergers and joint ventures are delivering value to both passengers and shareholders. And product innovations are growing ancillary revenues,” said Tony Tyler, IATA’s Director General and CEO.