Prospects for European Industry Dimming
Geneva - The International Air Transport Association (IATA) applauded the commitment of G-20 finance ministers to deliver a “strong and coordinated international response to address the renewed challenges facing the global economy.” IATA urged speedy follow-up given worsening economic conditions, particularly in Europe.
The commitment of the G-20 came as US Treasury Secretary Tim Geithner warned that Europe’s sovereign debt and banking crisis is the “most serious risk now confronting the global economy” and as IMF Managing Director Christine Lagarde called on Europe “to do whatever it takes” to support the weaker members of the European Union.
“We can clearly see a worsening trend in the aviation sector with profitability due to slump to $4.9 billion in 2012 which is a razor thin margin of just 0.8%. The economic uncertainty centered on Europe is the biggest downside risk that we face. It is critical that governments find solutions to stabilize the situation and stimulate growth. We welcome the commitment of the G-20 finance ministers and look forward to quick follow-up action,” said Tony Tyler, IATA’s Director General and CEO.
Last week IATA announced its first look at 2012 which showed reduced profitability for all regions. European carriers are expected to post the weakest margins and lowest absolute profits among the industry’s largest markets. Europe’s $1.4 billion profit in 2011 is expected to shrink to a mere $300 million in 2012, equating to an EBIT margin of just 0.8%. North America is expecting a $1.2 billion profit for an EBIT margin of 2.4% while Asia Pacific will be the strongest performer with a $2.3 billion profit and an EBIT margin of 2.8%.
Cargo is a leading indicator of the industry’s prospects. Looked at over the first seven months of the year the European cargo business grew by 4.0% compared to the same period in 2010. But it contracted by 0.7% in July (compared to the previous year) showing a clear shifting of gears to a worsening trend. The only region to show a weaker performance was Asia Pacific which slumped 3.6% compared the previous July driven by the extraordinary conditions of disrupted supply chains in the aftermath of the Japanese earthquake and tsunami, and tighter economic conditions in China as a result of inflation fighting measures.
“The European industry rests on a knife edge. Any worsening of the debt and banking crisis could plunge it into deep losses for 2012. As European governments look for a way forward it is important that they avoid any additional taxation on the industry to preserve its ability to catalyze economic growth,” said Tyler.
Europe is already disadvantaged by high taxes—including the GBP 2.5 billion UK Air Passenger Duty which is the biggest aviation tax in the world and recently introduced departure taxes in Germany and Austria which combined collect over EUR 1 billion. Moreover Europe will be introducing a further $1.2 billion burden in 2012 with the inclusion of international aviation in its misguided and seriously flawed emissions trading scheme—the weight of which will be primarily borne by Europe’s carriers.
“Europe’s policy-makers must focus on aviation as a catalyst for economic growth. If there are stimulus monies available aviation provides positive opportunities. Investments to support the development of sustainable biofuels and accelerate progress on the Single European Sky would leave Europe with a more efficient air transport sector, a greener economy and sustainable jobs generation,” said Tyler.
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Notes for editors:
- IATA (International Air Transport Association) represents some 230 airlines comprising 93% of scheduled international air traffic.
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