The world’s airlines’ body is downgrading its earlier forecast of $12.7-billion (U.S.) in profits this year.
The International Air Transport Association said on Monday it expects the global commercial air carrier industry to earn net profits of $11.7-billion on revenues of $708-billion in 2013, up from $7.4-billion in earnings last year.
The agency said in June it expected airlines to post better-than-expected profits of $12.7-billion, up from its forecast of $10.6-billion in March.
The lower predicted profits of $11.7-billion in 2013 are due to the impact of the oil price hike related to the Syrian conflict as well as reduced growth in some emerging countries and slowing cargo shipments, says IATA.
For next year, IATA forecasts net profits of $16.4-billion on total revenues of $743-billion, the second strongest year of the century after the record-breaking $19.2-billion in 2010.
But the agency representing 240 airlines warns that an industry profit of $16.4-billion implies a return on invested capital of only 5.2 per cent, considerably lower than the sector’s weighted average cost of capital in the 7-to-8 per cent range.
IATA director general and chief executive officer Tony Tyler said the overall picture for 2013 is positive but “we have run into a few speed bumps.
“Cargo growth has not materialized. Emerging markets have slowed. And the oil price spike has had a dampening effect. We do see a more optimistic end to the year. And 2014 is shaping up to see profit more than double compared to 2012.”
On a regional basis, the Asia-Pacific region is proving to be difficult, with the 2013 outlook reduced by $1.5-billion to $3.1-billion, says IATA. North American airlines are expected to post $4.9-billion in profits, up from the previously forecast $4.4-billion, and with margins of 4.3 per cent.
In Europe, the 2013 forecast is for airlines to post profits of $1.7-billion, up from $1.6-billion.
The outlook for Latin America is unchanged at $600-million in profits, while Middle East carriers are seen to record profits of $1.6-billion in 2013, slightly ahead of the previous outlook of $1.5-billion.
African airlines are expected to see losses of $100-million, down from a forecast of $100-million in profits.
“Airlines are demonstrating that they can be profitable in adverse business conditions. Efficiencies are being generated through myriad actions – consolidation, joint ventures, operations improvements, new market development, product innovations and much more,” said Mr. Tyler.