GENEVA - Middle East airlines are expected to post $300 million profit, less than the previously forecast $700 million because of deteriorating long-haul market conditions, International Air Transport Association (IATA) Director General and Chief Executive Officer Tony Tyler said Wednesday.
IATA also lowered its 2012 forecast for airline markets expecting profits to go down to $3.5 billion from $4.9 billion, a net margin of 0.6 per cent.
Profitability remained weak but unchanged this year, at $6.9 billion, for a net margin of 1.2 per cent, IATA said.
The European crisis presents serious downside risks to next year's economic outlook; if it evolves into a full-blown banking crisis and recession, IATA estimates that the global aviation industry could suffer losses in excess of $8 billion in the coming year.
In 2012, there will be a "marked divergence of financial performance among airlines in different world regions", with "European airlines likely to be hardest hit by recession in their home markets", journalists gathered for the Global Media Day in Geneva were told on December 7.
"What we are seeing at the global level is the combination of very different regional situations," said Tyler.
"Europeans, facing a sovereign debt crisis and economic austerity measures, are living a very different reality from their colleagues in Asia which is buoyed by the market dynamism of China. ... North America [is] managing through a sluggish economy with tight management economy. And, of course, everyone has been hit by higher fuel prices," Tyler added.
Airline cash flows fell by the third quarter of 2011 from the "peak of financial performance in the third quarter of 2010", yet Brian Pearce, IATA chief economist, believes the 5-10 per cent cash flow performance "was not bad, given the still high price of jet fuel and the economic uncertainty resulting from the eurozone crisis".
A key reason airlines managed to prevent cash flows and profitability from falling further is "good utilisation at least in the passenger business".
Passenger load factors were close to all-time high this year, and aircraft daily hours were kept at the levels reached in early 2010, but that was still less than pre-recession levels, according to IATA.
Airfreight market volumes have been shrinking since the middle of the year, international trade has virtually come to a halt, premium passenger numbers registered further slowdown, business confidence has been falling and austerity budgets have been adopted by many countries, particularly in Europe - where governments are tightening fiscal policy by around 1.5 per cent of the gross domestic product a year, both this year and in 2012 - at a time when interest rates and debt are causing the private sector to cut spending; all these are bound to slow passenger market growth, from an average of 6.1 per cent to 4 per cent, and keep airfreight markets flat in 2012.
IATA's forecast, as a result, is that "still high jet fuel prices and a weakening economy will lead to lower airline profits" next year. The net post-tax profits will drop from $6.9 billion this year to $3.5 billion in 2012.
At global level, passenger demand is expected to expand by 6.1 per cent, which is higher than the 5.9 per cent forecast in September. Air travel also kept a higher pace than expected, and that, with North America's capacity management, has kept load factors high and is supporting a 4 per cent increase in yields, which brings forecast revenues to a total of $596 billion this year, according to the association.
While all regions are expected to show profit deterioration from 2011, regional differences in 2012 "are stark": European carriers are expected to register $600 million in losses; North American carriers are expected to generate profits of $1.7 billion, Asia-Pacific airlines are expected to "deliver the largest absolute profit of $1.2 billion"; Latin American airlines will see profits decline to $100 million - "a $400 million negative swing from the previous forecast"; and African carriers expected to lose $100 million, as previously forecast.
"Even our best-case scenario for 2012 is for a net margin of just 0.6 per cent on revenues of $618 billion. But the industry is really moving at two speeds, with highly taxed European carriers heading into the red," said Tyler.
© Jordan Times 2011
