IATA revises 2012 forecast, warns about Europe

IATA has downgraded its forecast for airline profits for 2012 from US$4.9 billion to $3.5 billion for a net margin of 0.6 per cent.

IATA’s 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”.

Asia-Pacific carriers have seen stronger though varied trading conditions through the latter part of this year.

Japan’s domestic market still has not fully recovered from the March earthquake and tsunami, and load factors remain under pressure.

By contrast airlines have improved load factors and profitability on China’s expanding domestic market.

As a result IATA has upgraded its forecast for the region by $800 million to a $3.3 billion profit. This is the largest absolute profit among the regions.

Globally air travel growth has persisted at a stronger pace than IATA expected:

“This travel strength, along with tight capacity management, particularly in North America, has kept load factors high and is supporting a four per cent increase in yields,” IATA chief Tony Tyler said.

“This has helped a modest increase in forecast revenues, which we expect to total $596 billion this year.”

This slightly stronger-than-expected passenger performance is offsetting worse-than-expected cargo performance and somewhat higher-than-anticipated oil prices.

Looking ahead, IATA believes that, “Even if government intervention averts a banking crisis it is unlikely that Europe will avoid a brief recession. Business and consumer confidence has already fallen too far.”

IATA’s global GDP growth forecasts for 2012 have been revised downwards to 2.1 per cent.

Key variables driving this downgrade:

• Demand: Passenger demand is expected to grow by four per cent (down from previously forecast 4.6 per cent), while cargo is expected to show flat growth (down from the previously forecast 4.2 per cent expansion).
• Yields: Passenger and cargo yields are expected to remain flat in 2012. While this is unchanged for cargo, passenger yields were previously forecast to grow by 1.7 per cnet.
• Fuel: Fuel costs are relatively unchanged from the previous forecast at $198 billion. That is based on oil at $99 per barrel (against a previous forecast of $100 per barrel).
• Revenues and Costs: Industry revenues are expected to grow by 3.7 per cent to $618 billion. This will be outstripped by cost increases of 4.5 per cent to $609 billion.

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.

However, IATA has prepared a worst case scenario, in case the European sovereign debt crisis deteriorates into another banking crisis.

In this scenario all regions would incur losses, with Asia Pacific's number being $1.1 billion.