Financial Forecast

Profits Revised Down Sharply

Forecast 2011 airline net profits have been reduced to US$4 billion — less than half the $8.6 billion anticipated in March.

• Adverse demand shocks from the earthquake and tsunami in Japan, and turmoil in a number of MENA countries, have been compounded by a further rise in oil prices by $20 per barrel.
  
• Average 2011 brent oil prices are expected to rise from $96 to $110 per barrel.
  
• As monetary expansion by the USA and others subsides, financial investment in commodities should slow, limiting further increases in oil prices.
  
• Taking hedging into account, airlines’ fuel bills are expected to be $10 billion higher than forecast in March, at $176 billion or 30% of operating costs.
  
• Recouping this cost increase would require an additional 2% in yields.

• The recovery in profitability in 2010 was associated with improved asset utilization.
  
• Profitability this year has already been squeezed by a significant decline in both load factors and aircraft utilization.
• Nevertheless, world trade is expanding at a rate of around 9% a year and non-Japan Asia, in particular, is booming.
• Asia-Pacific airlines are therefore expected to remain the most profitable, followed by North America, where capacity growth has been limited relative to demand.
• If this growth continues, demand for air transport is likely to recover to 5-6% expansion in the second half of this year. Business travel has already shown robust growth.
  

• As long as economic expansion does not slow substantially, growth in business travel, cargo, yields and airline revenues should prevent rising fuel costs from forcing airlines into losses.

Full Financial Forecast Briefing Note - June 2011 (pdf)