It is likely to be a case of short-term gain and continuing pain for the global airline industry, with profits for carriers slated to fall in 2012 after an unexpectedly strong performance so far this year.
The airline industry is set to record a net post-tax profit of $6.9 billion this year, up from $4 billion as per previous estimates, the International Air Transport Association (IATA) said here today.
But for 2012, IATA, which represents about 93 per cent of global air traffic, has projected overall profit to fall to $4.9 billion with a razor-thin net margin of just 0.8 per cent, even lower than this years’ estimated net margin of 1.2 per cent.
“The story for 2012 basically is that we will see slower growth in traffic and passenger yields. Costs will increase marginally faster than revenues and we face a tough year,” said IATA director general and CEO Tony Tyler.
A combination of stronger air travel volumes, despite the shocks in Japan and the Middle East as well as weak economic growth in developed markets, along with an increase in asset utilisation has buoyed the forecast for this year.
However, given the direct correlation between the financial performance of the airline industry and global economic growth, the ongoing situation in the developed, Western economies is likely to translate into “an extended period of sluggish growth and weak profits” for the sector, IATA said in a release, and warned that additional shocks could even put the sector in the red.
The industry will also have to contend with stalled growth in air freight, where any revival is “unlikely” before 2012, in part due to overcapacity in the cargo markets. The cargo vertical is expected to grow by 4.2 per cent next year, but without any increase in yields.
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"After a strong post-recession rebound, from early 2009 through to the end of last year, there has been no further expansion in overall export and import volumes worldwide since last year,” IATA said, while describing the subsequent stagnation in the air freight market as “unsurprising”.
Asia-Pacific
Although profitability for airlines worldwide is expected to decline next year, carriers in the Asia-Pacific are likely to the least affected. The region will be the largest contributor to the industry’s profit in 2012, according to IATA’s forecast, with profits falling to $2.3 billion, as against $2.5 billion this year.
Stronger Asian economies and intra-regional travel and trade flows should enable Asia-Pacific airlines to sustain their profitability through 2012,” the fore-cast stated.
“The weakness of air cargo markets is disproportionately affecting airlines from this region owing to the larger share of cargo in airline revenues. The shocks from the Japanese earthquake and tsunami continue to affect supply chains and cargo markets (in which Asia Pacific carriers have the largest market share). A strong rebound is expected late in the year continuing into 2012,” it added.
INDIA
Within Asia-Pacific, the Indian market continues to be “seen as an area of huge opportunity and huge potential,” Tyler said, but warned that infrastructure and taxation woes could hurt the industry. India is among the fastest growing aviation markets in the world.
“There are some issues in India, particularly in infrastructure and so on, which are possibly a problem and constraint for the industry there. We encourage the government to make the necessary investment. But the potential for these markets is enormous,” he said.
While noting that the Airport Economic Regulatory Authority (AERA) had a “critical role to play in bringing much needed regulation to this area”Tyler said that IATA was “concerned about high levels of taxation” in the country as well as other charges paid by international carriers at Indian airports.