Airline Industry Profit Forecast Is Cut on Ukraine CrisisKari Lundgren
Airline earnings for 2014 will be $1 billion or 5 percent lower than previously predicted as political tensions drive up oil prices and growth in emerging markets slows, the International Air Transport Association said.
Carriers will earn a combined net income of $18.7 billion, versus the $19.7 billion forecast on Dec. 12, the Geneva-based industry group said today. Revenues will reach about $745 billion, about $2 billion higher than previously projected.
“This can be characterized as a tweak,” IATA Chief Executive Officer Tony Tyler said on a conference call. “The overall story is positive. Staying in the black is a major achievement reflecting the restructuring that has taken place.”
The cost of crude will rise to an average $108 a barrel, $3.5 higher than expected, adding about $3 billion to the industry’s fuel bill, IATA said today. Kerosene accounts for about 30 percent of airline expenses, though an economic upturn is spurring demand to a level that largely compensates for the impact on oil prices of geo-political instability, it said.
Mergers and joint ventures are helping to boost overall profitability, the industry group said, though the net margin for the sector will “remain at an unsatisfactory level” of about 2.5 percent in 2014.
North American carriers will make the biggest earnings contribution, generating $8.6 billion this year, $300 million better than earlier projections, IATA said, aided by the formation of American Airlines Group Inc. from a merger of AMR Corp. and US Airways Group Inc.
India, China Slow
The deal, which created the world’s largest carrier, followed Delta Air Lines Inc.’s takeover of Northwest Airlines Corp. and the merger of UAL Corp. with Continental Airlines Inc.
European carriers will post net income of $3.1 billion in 2014, a $100 million drop for earlier forecasts, while Asia-Pacific operators should lift earnings to $3.7 billion. Still, “turmoil” in foreign exchange markets has adversely affected growth prospects in India and Indonesia, and even China has slowed, albeit to a much lesser extent, IATA said.
Airlines in Latin American will more than double their net income to $1 billion next year, though that’s down $500 million on past projections, and carriers in Africa will earn money for the first time since 2010, it forecast.
The number of airline passengers will rise an average 5.4 percent per year through 2017, led be growth in the Middle East and Asia-Pacific, IATA said Dec. 10, taking the total to 3.91 billion travelers.