Asia-Pacific airlines to see sharp fall in profit

Industry body blames weak cargo market and slowdown in China for expected 44 per cent drop in earnings to US$3 billion this year

PUBLISHED : Friday, 14 December, 2012, 12:00am
UPDATED : Friday, 14 December, 2012, 3:00am

Carriers in the Asia-Pacific will see their profits fall 44 per cent this year because of the weak cargo market and the slowdown in China, the International Air Transport Association said yesterday.

The airline trade body has revised up the profit forecast for the airlines across the globe by 63 per cent to US$6.7 billion. Most of the gains came from the European carriers, which saw stronger-than-expected traffic in the second and third quarters.

Asia-Pacific airlines, including Cathay Pacific Airways, Korean Air and China Airlines, however, are still bogged down by the sluggish cargo demand from the West.

Cathay, for example, would generate 30 per cent of its revenue from the cargo division in previous good years. The carrier last month flagged a profit warning for its full-year earnings result, saying it would be "disappointing" because of falling cargo and passenger traffic.

Asian-Pacific carriers are expected to post a net profit of US$3 billion this year, down from US$5.4 billion last year - the largest drop in absolute value ever in the sector.

Industrywide net income for the year should reach US$6.7 billion, against a forecast of US$4.1 billion in October, Iata said. Profit next year might increase to US$8.4 billion - US$900 million more than last predicted although still short of the US$8.8 billion last year.

Sluggish growth and fuel costs have weighed on earnings for the past two years, triggering efforts to reduce capacity, cut costs and accelerate consolidation.

The biggest improvement has been in Europe, where airlines that were forecast to lose US$1.2 billion will break even in the wake of job cuts and takeovers.

"There are further opportunities for consolidation in Europe," Iata chief executive Tony Tyler said.

Smaller airlines might find a home in the big three groups of Air France-KLM Group, Deutsche Lufthansa and International Consolidated Airlines Group, although others could also go bust, Tyler said.

The forecast performance for Europe's airlines would still represent a US$400 million decline from a year ago. North American carriers would be among the few to see gains, with an expected collective profit of US$2.4 billion, Iata said.

Margins remained "perilously close" to the point where the industry turned to a loss, Iata said.

Net income is expected to reach 1 per cent of revenue this year and 1.3 per cent next year, when carriers may carry more than 3 billion passengers for the first time.

"Things are moving in the right direction, but the positive shift is not moving airlines anywhere to the 7 per cent to 8 per cent that would be needed to cover the industry's cost of capital," Tyler said in Geneva.

European airlines were not expected to return to profit next year, with the region the weakest global performer as the impact of its efficiency measures was offset by a worsening economic outlook, Iata chief economist Brian Pearce said.

North American airlines are expected to continue their gains next year, with profit reaching US$3.4 billion, compared with US$3.2 billion in the Asia-Pacific and US$1.1 billion in the Middle East.