Improving air cargo demand has bolstered growth projections for 2014, and all regions are expected to see higher profits this year than in 2013 despite difficult trading conditions.
The International Air Transport Association (IATA) has revised upward to 4 percent its growth forecast for the cargo sector this year, up from the previously projected 2.1 percent growth.
Still, airfreight trading conditions remain challenging. Protectionist measures dampen international trade, encouraging companies to “on-shore” supply chains and governments to support “buy local” procurement policies. Some 500 protectionist measures have been documented by Global Trade Alert in 2012 alone, noted IATA.
The airline industry in general remains on track to deliver a second consecutive year of improved profitability this year, despite a slight downgrade to US$18.7 billion from the previously forecast $19.7 billion.
Pulling down profits are higher oil prices, which are expected to be offset largely by stronger demand, especially for cargo, as the global economy gains traction. Overall industry revenues are expected to rise to $745 billion, or $2 billion more than previous projections.
“In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geo-political instability. Overall industry returns, however, remain at an unsatisfactory level with a net profit margin of just 2.5 percent,” said Tony Tyler, IATA’s director general and CEO.
By region, Asia-Pacific airlines are expected to post profits of $3.7 billion and an EBIT (earnings before interest and taxes) margin of 3.4 percent. This improves on 2013, as a slightly better outlook for cargo markets is seen to offset the adverse impact on passenger revenues of the turmoil in foreign exchange markets earlier this year. “Our forecast for the profits of airlines in this region in 2014 is $400 million less than the previous projection,” IATA said.
North American airlines are expected to post a profit of $8.6 billion—the biggest contribution to industry profits and more than double the $4.2 billion profit posted in 2010, the previous peak, and represents a third consecutive year of improving profitability. This is $300 million better than previously projected, reflecting the strength of the economic recovery in the United States. An anticipated EBIT margin of 6.5 percent is the strongest among the regions.
European airlines are expected to post a $3.1 billion profit, or $100 million less than previously forecast, but more than double the $1.2 billion profit posted in 2013. EBIT margins remain weak at 1.9 percent. While there is optimism over the end of the Eurozone recession, major structural issues remain, including high taxation, onerous regulation, and infrastructure bottlenecks such as the failure of the Single European Sky.
Middle Eastern airlines are expected to post a $2.2 billion profit, higher than the $1.6 billion profit that the region’s airlines made in 2013, but a $200 million downgrading from the previous forecast. Cargo in particular is experiencing strong growth as carriers tap into newly emerging trade lanes such as those between Africa and Asia.
Latin American airlines are expected to post a $1 billion profit. This is $500 million less than previously projected, following a weaker than expected improvement in 2013. But the outcome this year is still more than double the $400 million profit recorded in 2013. Poor economic performance in Argentina and Brazil are the main drivers of the reduced profitability expectations.
African airlines are expected to post a $100 million profit, unchanged from the previous forecast, but reversing the $100 million loss in 2013. The continent suffers from the lack of a holistic vision for developing connectivity across its vast distances.
IATA said GDP growth projections for 2014 have been raised to 2.9 percent from 2.7 percent. Improvements in the global economic outlook are largely being driven by developed economies. Job creation in the U.S., the end of fiscal austerity in Europe, and a much weaker yen in Japana re stimulating demand. While China appears to be continuing its impressive growth, key emerging economies such as India and Brazil face major economic challenges.
Photo: BriYYZ
