Airline Profits to Top $10 Billion on Improving Sales Outlook
Airlines will exceed last year’s earnings by about 40 percent in 2013, with net income likely to reach $10.6 billion, as sales growth outpaces higher fuel costs and improves the outlook for the industry globally.
Carriers in the Asia-Pacific region are set to lead the gain with $4.2 billion in profit, followed by $3.6 billion for those in North America, the International Air Transport Association said in a statement today. Even Europe and Africa, previously expected to only break even, stand to deliver $800 million and $100 million gains, the group said.
Sluggish growth and fuel costs have weighed on earnings in recent years, forcing airlines such as Air France-KLM (AF), Europe’s largest, to pursue cost cuts. Carriers have also sought closer international ties, with Etihad Airways PJSC, the third-largest Gulf carrier, investing in operators such as Air Berlin Plc (AB1), and Finnair Oyj (FIA1S) joining a trans-Atlantic joint venture involving British Airways (IAG), Iberia and American Airlines.
“Industry consolidation in domestic markets and joint ventures on long-haul routes have helped improve efficiency,” IATA Director General Tony Tyler said on a call. The improved outlook “is a small step in the right direction.”
Growth in traffic, the number of customers times the distance flown, should reach 5.4 percent, with air freight increasing 2.7 percent as global production improves, IATA said. Aircraft utilization is at near-record levels, Brian Pearce, IATA’s chief economist, said the call.
Still, the recovery remains fragile, with a European economic comeback and U.S. budget cuts among the concerns, Tyler said.
“We have had two false starts already,” he said. “The draconian measures proposed for Cyprus were a shock.”
Airlines are being forced to carry extra fuel because diversion airfields are not operating because of Federal Aviation Administration cutbacks, Tyler said. While the impact for now is still limited, it could worsen, he said.
Industrywide revenue is expected to reach $671 billion, a $12 billion improvement over IATA’s December estimate, with small growth in cargo joining a forecast of 5.4 percent passenger growth.
Fuel will remain at 33 percent of airline costs, IATA said, with the anticipated total bill rising $6 billion to $216 billion. That figure is driven by an expected average jet fuel price of $130 per barrel from $124.
IATA expects profit margin to reach 1.6 percent, beating last year’s 1.2 percent performance and the third highest level since 2000, Tyler said.
“We are nowhere near approaching what would be considered a normal return for other industries,” Tyler said. “There is very little buffer between profit and loss.”
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