Airlines predicted to make profit this year

Airlines around the world are forecast to return to the black this year as recovery from recession accelerates.

But the prediction of a $2.5 billion global profit made by the International Air Transport Association (IATA) came with “important health warnings”.

IATA director general and chief executive Giovanni Bisignani said: “First, this represents a net margin of just 0.5%, which is a long way from sustainable profitability.

“Second, a major part of the global industry is still posting big losses. A stagnating economy, strikes, natural disasters, and a currency crisis have left European carriers struggling with an anticipated $2.8 billion loss.”

IATA previously forecast in March that global airlines would suffer a $2.8 billion loss in 2010.

Europe is predicted to be the only region in the world to remain in the red with a $2.8 billion loss, with 70% of a $1.8 billion loss in revenue as a result of the volcanic ash crisis borne by European carriers.

Air space closures following the eruption of an Icelandic volcano dented the recovery in April as a result of more than 100,000 flight cancellations over six days.

“While uncertainty remains with the potential for future eruptions, it appears that this was a short-lived shock. Early May figures show a rebound in traffic for European carriers,” IATA said.

Bisignani added: “The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated.

“Airlines are benefiting from a strong traffic rebound that is pushing the industry into the black.

“We thought that it would take at least three years to recover the $81 billion (14.3%) drop in revenues in 2009. But the $62 billion top line improvement this year puts us about 75% on the way to pre-crisis levels.”

Industry revenues are forecast to hit $545 billion this year, up from the $483 billion in 2009, but still below the $564 billion achieved in 2008.

Passenger traffic is forecast to grow by 7.1% this year, an improvement on the previous forecast growth of 5.6%.
Business travel also appears to be bouncing back.

“Premium travel was rebounding at an annualized growth rate of 20 per cent over the first quarter and economy travel is now back to pre-recession levels,” according to IATA.

“In the absence of a strong improvement in consumer confidence that would be needed to drive leisure traffic growth, it would appear that business travel also supported some of the recovery in the economy cabin.”

Bisignani added: “Seeing black on the bottom line is a great achievement. The resilience of the industry has been strengthened by a decade of cost cutting, restructuring and re-engineering processes.

“But even with all of our hard work, the result is just a 0.5% margin that does not even cover our cost of capital. The industry is fragile.
“The challenge to build a healthy industry requires even greater alignment of governments, labour, and industry partners.

“They must all understand that this industry needs to continue to reduce costs, gain efficiencies and be able to re-structure itself if it is to be sustainably profitable. We must all be prepared for a greater change,”