ME carriers profits to nosedive from $700m in 2010 to $400m in 2011: IATA
Middle East carriers are expected to see a sharp decline in profits to $400 million in 2011 from a healthy crop of $700 million in 2010, according to the International Air Transport Association (IATA) report.
“The region also witness decline in the pace of demand growth will halve from 21.5% in 2010 to 10.5% in 2011,” IATA said in its latest forecast.
IATA on Tuesday revised global aviation industry outlook for 2010 with net profit expected to reach $15.1 billion, up from the $8.9 billion from an earlier forecast in September.
IATA also revised upwards its projections for 2011 to a net industry profit of $9.1 billion, up from the $5.3 billion forecast in September. However, according to IATA, 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.
Bisignani 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 Europe,” said Bisignani.
Shifts 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,” added Bisignani.
“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.
“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.
IATA expects passenger and cargo demand to grow by 5.2% and 5.5% respectively. This is better than the 4.9% and 5.3% previously forecast.