European Aviation Market Profitability Improves But Continues To
December 19, 2010 - The International Air Transport Association (IATA) revised its industry outlook for 2010 to a net profit of $15.1 billion (up from the $8.9 billion forecast in September).
Similarly the Association revised upwards its
projections for 2011 to a net industry profit of $9.1
billion (up from the $5.3 billion forecast in
September). Net margins remain weak at 2.7% for 2010 and
falling to 1.5% in 2011.
?Our profit projections increased for both 2010 and 2011 based on an exceptionally strong third quarter performance. But despite higher profit projections, we still see the recovery pausing next year after a strong post-recession rebound. And the two-speed nature of the recovery is unchanged with European airlines continuing to underperform other regions,? said Giovanni Bisignani, IATA?s Director General and CEO.
also characterized the improvements in terms of profit margins,
which continue to disappoint. ?Margins remain pathetic. With a
2.7% net margin in 2010 shrinking to 1.5% in 2011, we are
nowhere near covering our cost of capital. The industry is
fragile and balancing on a knife edge. Any shock could stunt the
recovery, as we are seeing with the results of new or increased
taxation on airlines and travelers in
the industry forecasts can appear dramatic in absolute numbers.
It is important to relate them to the size of the industry to
understand their significance. The $6.2 billion increase in
IATA?s projection for the 2010 net profit (compared to the
September forecast) is equal to just 1.1% of the industry?s
projected $565 billion in revenues.
?Any increase in profits is a welcome step in the right direction. But the fact that we can increase our profit forecast by 70% and still be left with a net margin of just 2.7% shows just how far this industry has to go to achieve a normal level of profitability,? said Bisignani.
Forecast - , , and .
-Major drivers for the improved 2010 forecast are Passenger traffic growth of 8.9% (compared to 7.7% previously forecast)
,Strong passenger yield growth of 7.3% (unchanged from the previous forecast)
,Revenue growth to $565 billion (an improvement of $5 billion on the previous forecast)
andAn average annual oil price in line with previously projected $79 per barrel (Brent)
?The third quarter
of 2010 was exceptionally positive in terms of passenger traffic volume.
Airlines met increased demand by utilizing their fleets more intensely.
Fixed costs remained constant, passenger yields firmed and the increased
revenues went almost directly to the bottom line,? said Bisignani.
In sharp contrast to improved conditions for air travel, the prospects for air cargo deteriorated from the September forecast. Demand is now expected to grow by 18.5% (compared to the previously forecast 19.8%), limiting yield growth to 7.0% (below the previously forecast 7.9%). ?The post-recession rebound drove a rapid expansion for cargo earlier in the year but it ran out of steam by the third quarter. Since May, overall volumes fell by 5%. This will only pick-up when consumers have bought the products that are already on the shelves,? said Bisignani.
2011 Forecast -
-?The recovery cycle will pause in 2011. Although the $9.1 billion profit projection for 2011 is better than we had previously forecast, next year the industry will face tougher conditions than what we are experiencing today,? said Bisignani.
compared to the previous forecast comes from , s
stronger traffic growth: Passenger and cargo demand is expected to grow by 5.2% and 5.5% respectively. This is better than the 4.9% and 5.3% previously forecast.
environment will become more difficult because of increased Fuel Cost:
For 2011, the average oil price is expected to increase to $84 per
barrel, up from the $79 per barrel for 2010. This will increase fuel
costs to 27% of operating costs (up from 26% in 2010).
All regions are
following the global trend of reduced profitability in 2011 compared to
carriers will post the largest profit in 2010 at $7.7 billion,
decreasing to $4.6 billion in 2011. It remains the most profitable
region of the world for airlines based on strong GDP growth (outside of
European carriers will be the industry laggard among the major regions with a $400 million profit in 2010 shrinking to $100 million in 2011. Improvements from the previous forecast are based primarily on the strength of long-haul operations that take advantage of robust growth in other regions. Intra-European market conditions remain depressed as a result of the debt-crisis, slow economic growth, government austerity measures and increasing taxation. Profitability is further weakened by below trend demand growth of 3.5% alongside a 4.4% increase in capacity in 2011.
|?AvStop Online Magazine Contact Us Return To News|