IATA issues warning despite profit growth

IATA issues warning despite profit growth
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Airlines are expected to generate fewer profits than expected this year as aviation’s governing body downgraded its forecast.

A spike in oil prices following the Syrian crisis and “disappointing” growth in emerging markets have been blamed for the decrease.

The International Air Transport Association (IATA) now expects combined profits from its 240 members to hit $11.7 billion on revenues of $708b, down from June’s previous projection of $12.7b.

But it still represents a significant improvement on last year’s $7.4b net profit.

IATA said 2014 is set to see further growth with initial forecasts expecting a profit of $16.4b on revenues of $743b. If achieved, it would be the second strongest performance since the turn of the century.

But IATA warned that the balance between profit and loss remains “delicate” due to the industry's notoriously slim margins.

“A $16.4b profit for transporting some 3.3b passengers means that airlines will retain an average of about $5 per passenger,” IATA director general and chief executive Tony Tyler said. “That very simple calculation demonstrates that even a small change in the operating environment – a new tax or other cost increase – could change the outlook quite significantly.”

Asia Pacific’s profit forecast for 2013 has been downgraded from $4.6b to $3.1b, a result of slower growth in some of the region’s emerging economies. The region has also been hit by the flat performance of the cargo market, according to IATA, while passenger growth of 6.6% will be outstripped by a 6.9% rise in capacity.

A modest profit increase to $3.6b is expected in 2014.

North American carriers have been tipped to post the strongest performance with combined profits in 2013 now forecast to hit $4.9b, up from the $4.4b projected in June and double those of 2012.

IATA said industry consolidation and international joint ventures have driven the improvement. Profits are expected to rise even further next year to $6.3b on the back of economic recovery and “capacity discipline”.

European carriers are forecast to rake in $1.7b this year, a slight increase on previous predictions, with 2014 profits set to almost double to $3.1b.

Middle Eastern airlines are expected to post a $2.1b profit next year, up from $1.6b this year.

Tyler described the picture as “largely positive”.

“Profitability continues on an improving trajectory,” he said. “But we have run into a few speed bumps. Cargo growth has not materialised, 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.”

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