Airline profits tumble amid sluggish demand

Thursday , March 06, 2014 - 1:41 PM

Bloomberg News

NEW YORK — Airline profits worldwide in 2013 will be 7.9 percent smaller than estimated at $11.7 billion amid sluggish travel demand and rising oil prices tied to the Syria crisis, the International Air Transport Association said.

The forecast released Monday compares with IATA’s projection in June for 2013 profit of $12.7 billion. The new figure would be a 58 percent jump from 2012’s $7.4 billion, according to an update from the Montreal-based industry group, whose members account for 84 percent of global air traffic.

The economy is “not improving as quickly as we expected,” IATA Chief Executive Officer Tony Tyler said on a conference call with reporters. IATA predicts global gross domestic product to expand 2 percent in 2013, down from 2.2 percent last year.

Slowing demand for travel in countries such as Brazil is damping revenue while fuel costs rise. Crude oil, from which jet fuel is refined, jumped 12 percent since IATA’s last forecast on June 3, to $104.36 a barrel. Fuel costs will be 31 percent of airline expenses this year, IATA said.

Passenger growth will be 5 percent this year, short of the 5.3 percent expansion in the previous forecast, IATA said. That’s also short of last year’s 5.3 percent increase. Cargo will grow 0.9 percent, down from a forecast of 1.5 percent.

Profits will more than double this year for North American airlines to $4.9 billion, up from a previous forecast of $4.4 billion, IATA said, as mergers and joint ventures to serve international markets help improve efficiency. European airlines are projected to report record profits of $1.7 billion, $100 million more than previously expected.

IATA said profits at Asia-Pacific airlines may be as low as $3.1 billion — $1.5 billion less than its June estimate — amid slow growth in the region’s emerging economies. African carriers, which in June were projected to post profits of $100 million, are now expected to lose that amount.

Airlines will see a “significant boost” in 2014 because of rising consumer confidence and improvement in cargo growth, IATA said. Earnings are forecast to rise to $16.4 billion in 2014 on sales of $743 billion, with all regions seeing improved profitability.

North American carriers may post $6.3 billion in profits next year, the industry’s strongest, helped by an improving economy and “capacity discipline.” Profits at European airlines are expected to almost double to $3.1 billion.

Carriers including United Continental Holdings, the world’s biggest airline, have resisted adding more seats this year amid concern that slow economic growth would damp travel demand. That restraint is helping keep planes filled at near- record full levels.

Tyler also cited what he sees as the “increasingly onerous regulation and government intervention” in the Department of Justice’s suit to prevent a merger between American Airlines and US Airways Group Inc.

Monday’s forecast is not contingent on the merger going through, IATA Chief Economist Brian Pearce said on the call.

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