World’s airlines to make US$20 billion profits in 2014

Montreal :The world’s airlines will make almost US$20 billion in profits next year, according to the latest forecast from the International Air Transport Association (IATA).

The figure of US$19.7bn marks an upward revision from the previous full-year profit forecast of US$16.4bn, and will represent 53% increase on the US$12.9bn profits the world’s airlines are expected to make in 2013.

IATA said the upward revision reflects “lower jet fuel prices… as well as improvements to the industry’s structure and efficiency”. Despite the positive forecast however, margins remain weak at just 2.6% of revenues, which are forecast to total US$743bn next year.

“Overall, the industry’s fortunes are moving in the right direction,” said Tony Tyler, IATA’s director general & CEO. “Jet fuel prices remain high, but below their 2012 peak. Passenger demand is expanding in the 5-6% range — in line with the historical trend. Efficiencies gained through mergers and joint ventures are delivering value to both passengers and shareholders. And product innovations are growing ancillary revenues.”

“It’s a tough environment in which to run an airline. Competition is intense and yields are deteriorating. Cargo volumes haven’t grown since 2010 and cargo revenues are back at 2007 levels. The passenger business is expanding more robustly. Some airlines will out-perform our estimates and others will underperform. But, on average, airlines will only make a net profit of about US$5.94 per passenger in 2014,” he said.

Global passenger numbers are expected to reach 3.1bn in 2013, before rising 6% to 3.3bn in 2014. But the main driver of the forecast is the reduction of jet fuel prices. Fuel accounts for up to 40% of an airline’s operating costs, so the forecast decline in the price of a barrel of oil from US$108.2 per barrel in 2013 to US$104.5 in 2014 is expected to result in savings of up to US$5bn next year.

North American airlines are expected to see profits rise 43% to US$8.3bn in 2014 – the highest of any region and ahead of Asian Pacific, which will see a 28% increase to US$4.1bn.

Europe’s long-suffering carriers are expected to fare better next year, with profits surging 88% to US$3.2bn, while airlines in the Middle East are expected to see growth of 50%, to US$2.4bn.

Latin American airlines will see the strongest growth of any region, with profits jumping 114% to US$1.5bn, while Africa’s airline profits are forecast to remain flat, at just US$100m.

“In 2014 we will mark 100 years since the first scheduled commercial air service was inaugurated. Over aviation’s first century, our world has changed for the better in many ways. The industry evolved into a powerful draft horse connecting people and growing economies. Governments should keep this in mind when developing policies or deciding taxes. Supporting aviation’s enabling capabilities pays big economic dividends,” Tyler concluded.