IATA Cuts Airlines’ Profit Forecast

IATA Cuts Airlines’ Profit Forecast

Air cargo.

A weakening cargo market and economic slowdown in Asia will cut global airlines' profit in 2013 by 8 percent to $11.7 billion, according to the International Air Transport Association.

The $1 billion downgrade from a previous forecast in June is also the result of higher oil prices resulting from the conflict in Syria, the industry body said. Total industry revenue is expected to reach $708 billion.

However, IATA predicted the industry would rebound to a combined profit of $16.4 billion in 2014, more than double the $7.4 billion posted in 2012 and the second strongest performance this century after the record $19.2 billion profit in 2010.

“Overall, the story is largely positive,” said Tony Tyler, IATA CEO and direct general, in a written statement. “Profitability continues on an improved trajectory. But we have run into a few speed bumps. Cargo growth has not materialized. Emerging markets have slowed. And the oil price spike has had a dampening effect.”

Growth in emerging markets in India, Brazil and to an extent in China has been slower than expected, but this “has been somewhat balanced by improvements in the U.S. economy, as well as a stabilization in the eurozone.”

The cargo market is expected to inch up by 0.9 percent in 2013, down from a previous forecast of 1.5 percent. Cargo yields are projected to decline by 4.9 percent, more than double the previously predicted 2 percent, as airlines’ ability to match capacity to demand is limited by the growth in belly capacity as the industry responds to rising passenger demand. Global cargo revenue is expected to decline by $8 billion from their 2011 peak to $59 billion. By contrast, passenger revenue is set to expand by $68 billion to $565 billion.

North American carriers are expected to post strong performance with profits of $4.9 billion against the $4.4 billion previously forecast. Asian airlines profit has been downgraded by $1.5 billion to $3.1 billion, reflecting their dominant position in the cargo market and slowing growth in some regional economies. European airlines are expected to post profits of $1.7 billion, a $100 million upgrade from the previous forecast.