THE International Air Transport Association (IATA) has released its quarterly updated industry financial forecast. Al-Ahram Weekly joined a telephone press briefing organised in Singapore, reports Amirah Ibrahim The forecast featured updated figures and analysis for the global air transport industry, as well as financial forecasts for each region of the world. IATA revised its 2010 industry outlook and is now projecting a profit of $8.9 billion (up from the $2.5 billion forecast in June). "It is a significant improvement, much stronger than forecast, but it's no time for a big celebration, just a small party," said Giovanni Bisignani, IATA's director general. "The industry recovery has been stronger and faster than anyone predicted. The $8.9 billion profit that we are projecting will start to recoup the nearly $50 billion lost over the previous decade," he added. But he warned that the profit margins that airlines operate on were so razor thin that even increasing profits 3.5 times would only generate a 1.6 per cent margin. "This is below the 2.5 per cent margin of the previous cycle peak in 2007 and far below what it would take just to cover our cost of capital," Bisignani explained as he addressed international media through a telephone press briefing from Singapore. He indicated that the improved outlook for 2010 is being driven by a combination of factors. "On the revenue side increasing demand and disciplined capacity management are leading to sharply stronger yields pushing revenues higher. At the same time, costs remain relatively stable." Rapidly improving demand has pushed traffic 3-4 per cent above the pre-crisis levels of early 2008. Demand in 2010 is expected to grow by 11 per cent (stronger than the previous forecast of 10.2 per cent) while capacity will only expand by 7.0 per cent (up from the previous forecast of 5.4 per cent). Yields are now expected to grow by 7.3 per cent for passenger and 7.9 per cent for cargo. Revenues are expected to grow to $560 billion, $15 billion more than previously forecast. "The revised outlook maintains an average full-year crude oil price of $79 per barrel. However, excess refinery capacity is pushing the "crack spread" slightly lower than previously anticipated resulting in lower prices for jet fuel. Even with stronger traffic the total fuel bill is now forecast to be $137 billion, $3 billion lower than forecast in June. Fuel continues to account for about 25 per cent of industry costs," indicated Bisignani. While all regions except Africa showed improved prospects compared to the previous forecast, sharp differences remain. Asia-Pacific carriers are expected to post a $5.2 billion profit. This is better than the $3 billion recorded during the previous peak in 2007 and double the previously forecasted $2.2 billion. "The strong improvement is based on strong market growth and yield gains. The 23.5 per cent improvement in high volume intra-Asia premium traffic, due to a surge in business travel, is another of the driving factors." Compared to the June forecast, the prospects for Europe's carriers improved from a loss of $2.8 billion to a loss of only $1.3 billion. The gains are largely attributed to traffic into Europe, boosted by the low currency which has stimulated exports and improved the air cargo business. North American carriers are now forecast to make $3.5 billion (up from $1.9 billion). Latin American carrier profit forecasts have improved slightly from $900 million to $1 billion. Middle Eastern airlines have benefited from strong regional economies and an expanded share of long-haul markets. Carriers in the region are expected to see their profits rise significantly from $100 million to $400 million. Prospects for African airlines remain unchanged from the previous forecast at $100 million profits. The industry outlook grows weaker in 2011. In its first look into 2011, the Association estimates that profitability will drop to $5.3 billion. The impact of the post- recession bounce from re-stocked inventories will dissipate. Travel and freight markets will remain stronger in regions such as Asia, the Middle East and South America but we do not expect these hot spots to be able to sustain global growth in 2011. Slower growth is expected to keep costs in check and oil prices are expected to remain constant at $79 per barrel. Industry growth is expected to fall back to 5 per cent, in line with the historical trend. But a surge of aircraft deliveries (1400) will fuel capacity expansion of 6 per cent in excess of expected demand improvements. Falling load factors will remove the possibility for further yield improvement leading to a more challenging revenue environment. "This year (2010) is as good as it gets for this cycle. And we expect the 3.2 per cent GDP growth of 2010 to drop to 2.6 per cent in 2011. As a result, 2011 is looking more austere. We see profitability falling to $5.3 billion with a margin of 0.9 per cent," said Bisignani.
