Forecasts for international airline profits in 2012 have been downgraded from $4.9 billion to $3.5 billion for a net margin of 0.6 percent, the International Air Transport Association (IATA) said in a revised industry outlook.
For 2011, profitability remains weak but unchanged at $6.9 billion for a net margin of 1.2 percent.
The association identifies the Eurozone crisis as putting a severe downside risk on the 2012 outlook. In a worst-case scenario where the Eurozone crisis evolves into a full-blown banking crises and European recession, it estimates losses exceeding $8 billion for the global aviation industry in 2012.
“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion—the largest since the 2008 financial crisis,” said Tony Tyler, IATA’s director general and CEO.
“The global forecast for 2011 is unchanged at $6.9 billion. But regional differences have widened, reflecting the very different economic environments facing airlines in different parts of the world. And the overall margin of 1.2% tells you just how difficult the battle for profitability in this business is,” said Tyler.
IATA said driving the downgrade in the 2012 outlook is the downward revision to 2.1 percent of the global GDP growth forecasts for next year. “Historically the airline industry has seen profit turn into loss whenever global GDP growth falls below 2 percent,” it added.
For its 2012 outlook, IATA sees passenger demand growing by 4 percent (down from previously forecast 4.6 percent), and cargo showing flat growth (down from the previously forecast 4.2 percent expansion).
It said there are “stark” regional differences in profit deterioration for 2012.
European carriers are expected to fall into losses of $600 million, hit by the weakness of their home market economies and further increases in passenger taxes.
North American carriers are expected to generate profits of $1.7 billion, maintaining the strongest EBIT margin of 2.4 percent, as limited capacity growth is providing some protection against the downward pressure on profits.
Asia-Pacific carriers are expected to deliver the largest absolute profit at $2.1 billion. This is weaker than 2011’s performance, but the deterioration is limited by high load factors on markets such as China, where the increases in demand are structural and to some extent shielded from the cycle.
Middle East carriers are expected to post a $300 million profit, less than half the previously forecast $700 million profit, as long-haul market conditions deteriorate, in particular those linked to the weak European economies.
Latin American carriers will see profits decline to $100 million—a $400 million negative swing from the previous forecast, partly a carry-over from the recent weakness of profitability in the large Brazil market.
African carriers will fall into losses of $100 million, unchanged from the previous forecast. Economies and air transport markets continue to grow in the region, but load factors are not expected to be strong enough to offset the impact of weaker yields on profitability.
“Even our best case scenario for 2012 is for a net margin of just 0.6% on revenues of $618 billion. But the industry is really moving at two speeds with highly taxed European carriers headed into the red,” Tyler said.
