High oil prices to shave $1 bn of global aviation industry profits: IATA

Global airlines are expected to close the year 2013 with a net profit of $11.7 billion, down $1 billon from the earlier projected profit of $12.7 billion, due to high oil prices and slow growth in emerging economies, the International Air Transport Association (IATA) said.

IATA, however, said global aviation industry profits in 2013 are expected to be more than $4 billion higher compared with the $7.4 billion profit recorded last year. The industry performance could have been better had it not been for the oil price hike and ''disappointing'' growth in key emerging markets, it added.

The 2013 performance is considerably better than the $7.4 billion net profit of 2012 and IATA expects profits to be even better at 16.4 billion in 2014.

''The upward trend should continue into 2014 when airlines are expected to return a net profit of $16.4 billion. This would make 2014 the second strongest year this century after the record breaking $19.2 billion profit in 2010,'' IATA said in its latest industry outlook.

''Airlines are demonstrating that they can be profitable in adverse business conditions. Efficiencies are being generated through myriad actions - consolidation, joint ventures, operational improvements, new market development, product innovations and much more,'' IATA director general and CEO Tony Tyler said.

IATA, which represents some 200 airlines, also cited weaker growth in parts of Asia and a worsening slowdown in freight demand for the cut in 2013 industry profit forecast.

Overall growth in passenger numbers remained robust at 5.0 per cent, although slightly below the 5.3 per cent previously projected and below the 5.3 per cent growth recorded in 2012. Passenger numbers are expected to grow to 3.12 billion - the first time that they have topped the 3 billion mark.

Cargo growth was lower at 0.9 per cent, down from the previously projected 1.5 per cent. Cargo yields are expected to fall by 4.9 per cent this year (deeper than the 2.0 per cent decline previously projected).

Cargo revenues are expected to show an $8 billion decline to $59 billion from their peak in 2011. By comparison passenger revenues expanded by $68 billion to $565 billion over the same period.

The projections, released in Montreal by Tyler today, downgraded the outlook for Asia-Pacific airlines ''by $ 1.5 billion to $3.1 billion profits'' as it was largely driven by slower growth among the region's emerging economies.

North American airlines are expected to post the strongest performance at $4.9 billion profits (up from the previously forecast $4.4 billion) and an earnings before interest and taxes (EBIT) margin of 4.3 per cent. This is more than double the $2.3 billion profit of 2012.

European airlines are expected to record profits of $1.7 billion (up from the previously expected $1.6 billion), helped largely by long-haul markets and economic stabilisation in the Euro zone.

While this is a considerable improvement on the $400-million profit that European carriers made in 2012, the EBIT margin of just 1.3 per cent is the weakest among the major regions and well below the industry average of 3.2 per cent.

The outlook for Latin American carriers is unchanged at $600 million profits. Despite weakness in Brazil, the growing long-haul market between North and South America and the new South-South connectivity to Asia and Africa is expected to improve performance. Passenger demand growth of 6.0 per cent is expected to outstrip capacity expansion of 5.3 per cent.

Middle East carriers are expected to post profits of $1.6 billion, which is marginally ahead of the $1.5 billion previously forecast. The region's efficient hubs continue to support strong performance on long-haul markets.

African carriers are likely to fall into losses of $100 million (down from a previously projected profit of $100 million) with stiff competition in the long-haul markets. The region's airlines face the significant impediments of high costs, onerous taxes, government interference, inefficient fleets, and poor infrastructure.

Demand growth, however, is expected to be a robust 7.8 per cent ahead of a capacity expansion of just 5.5 per cent.

Oil prices are expected to average at $109 per barrel (Brent) for the year, $1.0 higher than previously expected, although jet fuel prices have softened slightly.

IATA expects jet fuel prices to average $126.4/barrel ($1.0 less than expected).  The net impact on the overall fuel bill (which is expected to total $213 billion and account for 31 per cent of total costs) is expected to be neutral.