IATA boosts airlines’ profit forecast despite challenges

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Airlines around the world are expected to post better-than-expected profits of $12.7-billion (U.S.) this year but they continue to struggle with razor-thin margins amid a weak economic outlook and relatively high fuel prices.

The International Air Transport Association has upgraded its global outlook for the airline industry to $12.7-billion profit from the $10.6-billion forecast in March, a marked improvement on the $7.6-billion posted in 2012.

But margins will remain weak. On projected revenues of $711-billion, the net profit margin is expected to be 1.8 per cent, IATA said in a news release Monday.

Yet that 1.8 per cent margin would make 2013 the third best year for airlines since the events of 2001, a reflection of just how tough these past few years have been, says the agency.

The best showing since 9/11 was the 3.3 per cent margin earned in 2010, followed by 2.9 per cent in 2007, said IATA.

"This is a very tough business. The day-to-day challenges of keeping revenues ahead of costs remain monumental," IATA director general and chief executive officer Tony Tyler said in a statement.

"Many airlines are struggling. On average airlines will earn about $4 for every passenger carried – less than the cost of a sandwich in most places."

Airlines have managed to improve their performance over the past seven or eight years thanks to more efficient use of assets, according to IATA.

The industry load factor – a key measure showing the percentage of seats filled by fare-paying passengers – is anticipated to reach a record high of 80.3 per cent this year, six percentage points above 2006 levels.

Ancillary revenues is one area where are airlines are improving their performance: they are expected to increase to five per cent this year from 0.5 per cent in 2007.

The price of oil in 2013 is forecast to average $108 per barrel of Brent, slightly below last year's $111.8. And lower fuel prices should help offset the impact of weaker-than-forecast global economic growth, says IATA.

"Generating even small profits with oil prices at $108/barrel and a weak economic outlook is a major achievement. Improved performance is what's keeping airlines in the black," said Mr. Tyler.

"For the first time in history, the industry load factor is expected to average above 80 per cent for the year. And with ancillary revenues topping 5 per cent, it is clear that airlines have found new ways to add value to the travel experience and to shore-up the bottom line."