Looking at the numbers
Downward pressure starting to ease
Since our June forecast, risks around the Eurozone crisis and high oil prices have not been eliminated, but have reduced
- Oil prices have eased, as supply increases from Saudi Arabia and the US.
- Eurozone anxieties remain but the ECB’s conditional promise to buy the debt of Spain and other troubled governments is a major step towards stabilization.
- Additional monetary easing by the US Federal Reserve and the Bank of Japan has also improved expectations about economic growth later this year and next.
As a result we now expect less of a fall in airline profits this year, and a moderate improvement in 2013.
- The airline industry worldwide should earn net profits of $4.1 billion in 2012, compared to $3 billion in our previous forecast.
- Big geographical differences remain, with European losses unchanged, but North American airlines’ performance is revised higher.
The outlook for next year is moderately better:
- The adverse impacts of high oil prices and slowing world trade growth appear to be reaching their points of maximum damage in 2012 – with economic growth and world trade growth expected to increase at a slightly faster pace next year.
- Traffic volumes will grow slightly faster in 2013, driven by growth of cargo after its decline this year. North American airlines stand out with very little capacity added this year or next, while airlines in the Asia-Pacific are expected to see renewed strong growth in 2013 as cargo recovers. Middle Eastern airlines are expected to continue to expand rapidly.
- Capacity growth is kept lower, sustaining load factors.
- Regarding downside risks, while European governments have responded to the debt crisis with austerity budgets, the US still has a very large budget deficit of more than $100 billion a month. In this central forecast we assume that current political developments mean that the US will not hit its ‘fiscal cliff’ and fiscal and monetary policy will continue to be supportive.
- The risk of higher oil prices appears to have diminished with the rise in supply from Saudi Arabia and the US.
- The Chinese economic slowdown is expected to stabilize.
With somewhat lower oil prices and slightly faster economic growth in 2013, we anticipate a rise in profits to $7.5 billion
- That is still a tiny profit in a $660 billion industry, a margin of just 1.1%.
- Airlines will be able to pay their bills and service their debt, but there is very little left over for the shareholders.
Read the complete IATA Financial forecast (pdf)