Airlines to Post $2.5 Billion Profit; IATA Scraps Loss Forecast
Giovanni Bisignani, director general and CEO of the International Air Transport Association (IATA), attends a news conference in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg
June 7 (Bloomberg) -- Giovanni Bisignani, chief executive officer of the International Air Transport Association, talks about the airline industry's return to profit in 2010 after two years of losses. Bisignani speaks from the IATA annual meeting in Berlin on Bloomberg Television's "The Pulse" with Andrea Catherwood. (Source: Bloomberg)
June 7 (Bloomberg) -- John Leahy, chief operating officer of Airbus SAS, talks about the outlook for the airline industry and the company's share in the Chinese and Indian markets. He speaks on Bloomberg Television's "The Pulse" with Andrea Catherwood from the International Air Transport Association conference in Berlin. (Source: Bloomberg)
The airline industry will post a $2.5 billion profit in 2010, reversing two years of losses, the International Air Transport Association said today, scrapping an estimate for a $2.8 billion deficit as the economy rebounds.
The profit would be the industry’s first since 2007 and only the third in a decade after previous results were afflicted by recession, terrorist attacks, epidemics and wars. Europe is the only region still forecast to lose money in 2010.
Prospects for carriers have improved in the past few months as economic growth in Asia and the U.S. boosts demand for travel and capacity cuts imposed last year bolster ticket prices. IATA had been predicting a loss as recently as March 11. Moody’s Investors Service today also raised its outlook for the industry to stable from negative, citing improving fundamental credit conditions in the next 12 to 18 months.
“The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated,” IATA Chief Executive Officer Giovanni Bisignani said today at the organization’s annual meeting in Berlin. “Airlines are benefiting from a strong traffic rebound that is pushing the industry into the black.”
Collective revenue is forecast to total $545 billion this year, up 13 percent from $483 billion in 2009, when the industry lost about $10 billion. IATA says it will take two years instead of three for sales to recover to peak levels, given anticipated growth in 2010 of 7 percent in Asia and 3.3 percent in the U.S.
Yield Improvement
Yields, a measure that equates to average fares, will grow by 4.5 percent for both passenger and cargo businesses after falling 12 percent in 2009, Bisignani said today.
“It feels like recovery to me,” said Dave Hess, president of Pratt & Whitney, which supplies aircraft engines for Airbus A320- series jetliners. “I just look at the trends for cargo starting to come back, and hear about people bringing planes back out of the desert.”
Deutsche Lufthansa AG, Europe’s biggest freight handler, may further increase prices for its cargo services this year, Carsten Spohr, head of the cargo division, told reporters today.
IATA, which represents 230 airlines carrying 93 percent of international traffic, estimates that jet fuel will represent 26 percent of operating costs this year, up from 23 percent in 2009. Brent crude oil will average $79 a barrel.
Volcanic Ash
Despite the general recovery, European airlines will lose about $2.8 billion in 2010, IATA says, $600 million more than the March estimate. That’s after the eruption of Iceland’s Eyjafjallajökull volcano on April 14 closed airspace for six days and grounded 100,000 flights. The event cost the industry $1.8 billion, with $1.26 billion of those losses in Europe.
Air France-KLM Group is “emerging from a difficult period,” CEO Pierre-Henri Gourgeon said in an interview. Europe’s largest carrier, which in May reported its biggest annual loss in at least two decades, is aiming to break even at an operating level in the year ending March 31, the CEO said.
Asia-Pacific carriers are expected to earn $2.2 billion this year, up from the March forecast of $900 million. The region lost $2.7 billion in 2009.
Emirates
Economic growth in the Persian Gulf region, fueled by robust oil prices and growing investments, is pushing up demand for air travel. Middle Eastern carriers will probably post a combined profit of $100 million this year, rebounding from a $600 million loss in 2009, IATA said today.
Emirates, the biggest Arab airline, forecasts profit this year will exceed the $964 million reported for the 12 months ended March 31, CEO Tim Clark said in Berlin today. Yields, are “much stronger” than a year ago and is almost back to the 2008 levels, he said.
In North America airlines will probably post a profit of $1.9 billion, IATA said, versus a prior prediction for a $1.8 billion loss.
IATA’s projections are based on information from members, which don’t include discount airlines such as Southwest Airlines Inc., Ryanair Holdings Plc and EasyJet Plc.
To contact the reporters on this story: Andrea Rothman in Berlin via aerothman@bloomberg.net; Steven Rothwell in Berlin via srothwell@bloomberg.net
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