September 2022, Virtual
September 29 2022, Virtual
Now in its 27th year, the Business Travel Awards
The airline industry is set to make better-than-expected profits this year but margins will remain “razor thin”, according to the latest figures from IATA.
The association had previously forecast that the aviation sector would make an overall profit of $10.6 billion during 2013 but this was today (June 3) upgraded to a predicted profit of $12.7 billion.
Despite this expected improvement in profitability, IATA said that margins for airlines “remain weak” with an average net profit margin of 1.8 per cent, although this would still be the third best performance since 2001 (margins reached 2.9 per cent in 2007 and 3.3 per cent in 2010). The industry made a collective profit of $7.6 billion in 2012 with a profit margin of 1.1 per cent.
IATA director general Tony Tyler said: “This is a very tough business. The day-to-day challenges of keeping revenues ahead of costs remain monumental. Many airlines are struggling. On average airlines will earn about $4 for every passenger carried—less than the cost of a sandwich in most places.
“Generating even small profits with oil prices at $108 per barrel and a weak economic outlook is a major achievement. Improved performance is what’s keeping airlines in the black. Airlines are putting more people in seats.”
Tyler added that airlines had been able to improve profits due to higher load factors – they are expected to be above 80 per cent for the first time in 2013 – and the increase in ancillary sales.
“Airlines have attacked costs and improved efficiencies,” said Tyler. “Industry programmes such as e-ticketing, have contributed to the effort. This helped to keep unit cost increases to 23 per cent. Intense competition means that fares have been unable fully to recoup cost increases.
“Airlines have found new value streams - ancillary sales have grown to over 5 per cent of revenues, and capacity is being used more efficiently. The industry load factor is at a record-high of 80.3 per cent.”
IATA is now forecasting that European-based carriers will make an overall profit of $1.6 billion – double the previous estimate of $800 million. The association said demand “remains strong” in Europe with passenger traffic set to grow by 4 per cent, outpacing an overall capacity rise of 2.7 per cent.
“Improvements in the eurozone crisis have stalled in recent months, giving rise to fears of a third false dawn. In 2011 and 2012, improving trends dissipated when the crisis took unexpected turns for the worse,” said IATA in its report.
“Economic conditions are the weakest in this region but consolidation on the North Atlantic market and within Europe is helping to improve financial performance.”