Airline profits to rise amid recovery of cargo sector

Asian carriers to benefit most from resurgent freight market, aviation body says, as it foresees a brighter 2013 than was previously forecast

PUBLISHED : Thursday, 21 March, 2013, 12:00am
UPDATED : Thursday, 21 March, 2013, 5:30am

A rebound in cargo volumes and growing passenger demand has led a global airline lobby group to raise its forecast for airline profitability and revenues this year.

The International Air Transport Association (IATA), which represents 240 airlines comprising 84 per cent of global air traffic, said airlines are on course to post total net profits of US$10.6 billion this year, up from December's forecast of US$8.4 billion. Total revenues are projected to climb by US$12 billion to US$671 billion this year.

IATA said the new projection follows brighter prospects for the air cargo and passenger markets in the last three months, with the forecast for 2013 global gross domestic product growth being raised to 2.4 per cent amid a rebound in airline stocks, which have risen by 7 per cent.

But Tony Tyler, IATA director-general, cautioned there was a similar improving trend at the end of 2011 and early 2012 but the recovery "lost steam".

He said Asia-Pacific carriers would generate US$4.2 billion in net profit this year. This compares with December's projection of US$3.2 billion and reported profits of US$3.9 billion for last year.

Brian Pearce, IATA chief economist, said "a significant amount" of Asian airlines' profit would come from the resurgence in cargo volumes. He said there are "very encouraging signs" in the airfreight market and that the downturn had bottomed out, with the sector "starting to get positive".

Tyler said Asian carriers, such as Cathay Pacific Airways and Singapore Airlines, would benefit the most from the cargo recovery because they comprise about 40 per cent of the airfreight market.

Pearce added that the passenger market for Asian carriers is also growing, while Tyler said global passenger demand would rise by 5.4 per cent this year, against 4.5 per cent forecast earlier.

Pearce said that while IATA did not give specific country forecasts, the "mainland economy is on a reasonable footing" and domestic air travel is expanding.

Asked whether mainland airlines face a threat from high-speed rail, Tyler said it is "an old story" and mainland carriers are pragmatic about the threat, developing new services.

Asked if there are any possible headwinds in store for Asian carriers, Pearce said there is "always potential for surprises". But he added that there is more concern about economic conditions in Europe derailing the recovery for airlines than issues in the Asia-Pacific region.

Tyler said: "The controversy over the draconian bailout proposal for Cypriot financial institutions is a clear indicator that the euro-zone crisis is not over and could take a turn for the worse. European Central Bank commitments with respect to the euro-zone crisis and the slow economic recovery in the US should be pointing us towards a durable, if weak, upswing."

Tyler said rising fuel prices, which are likely to average US$130 per barrel this year, will increase airlines' fuel bill by US$6 billion, but airlines globally will be US$2.2 billion better off compared with December's forecast.

Analysts said the revised IATA forecasts were in line with expectations. Patrick Xu, aviation analyst at Barclays, said cargo revenues had steadily improved during the second half of last year.