Back in the doldrums

THE message this year: profits are higher than expected on the back of less cargo than expected. The message next year: we will be back in the doldrums, IATA stated.

The tail-end of 2011 will be brighter for airlines with an upgrading of IATA’s industry profit expectations to US$6.9 billion, up from $4 billion projected in June.

Despite the improvements, profitability at these levels is still exceptionally weak (1.2 per cent net margin) considering the industry’s total revenues of $594 billion, the association added.

Airfreight has stagnated since the start of the year – IATA compressed its full-year volume growth projection from 5.5 per cent to 1.4 per cent. Airlines are expected to carry 46.4 million tonnes of cargo in 2011, down from the previous forecast of 48.2 million.

Cargo volumes reached their post-recession peak in May 2010, largely driven by re-stocking. July’s traffic was four per cent lower than that level. It appears unlikely that a revival in airfreight will begin before next year.

For 2012, IATA projects profits to decline to $4.9 billion on revenues of $632 billion for a net margin of just 0.8 per cent.

“We should keep the improvement in perspective,” Tony Tyler, IATA’s chief executive officer, said. “The $2.9 billion bottom line improvement is equal to about a half a perc ent of revenue and the margin is a paltry 1.2 per cent. Airlines are competing in a very tough environment. And 2012 will be even more difficult,” said Tyler.

The industry forecast of a $4.9 billion profit is based on cargo markets that will grow at 4.2 per cent (three times the 1.4 per cent growth of 2011), but with no growth in yields.

“It looks like we are headed for another year in the doldrums. Relatively stronger economic growth and some rebound in cargo will help Asia Pacific airlines to maintain their 2012 profits close to 2011 levels at $2.3 billion. The rest of the industry will see declining profitability. The worst hit is expected to be Europe where the economic crisis means the industry is only expected to return a combined profit of $300 million. A long slow struggle lies ahead,” Tyler concluded.