Airline industry profits ascend to previous highs

The global airline industry was predicted to soar to a profit of nearly $9-billion in 2010—compared with a loss of some $10-billion in 2009.

According to the International Air Transport Association (Iata), the global airline business was set to record a profit of $8,9-billion in 2010, up from a previous forecast of $2,5-billion.

Iata said two regions would provide most of the industry’s profits, forecasting a surplus of $3,5-billion for North America and $5,2-billion in the Asia-Pacific area.

Europe, however, was expected to post a loss of $1,3-billion, with the United Kingdom the weakest performer on the continent.

“The differences between regions to a large part reflect their relative economic performance. The European population just doesn’t want to travel given the economic uncertainties at home,” said Iata chief economist Brian Pearce.

The bounce back, in the United States market in particular, has been driven by higher average fares—owing to cuts in capacity that have spread demand across fewer seats.

Iata said the strong performance of Asia-Pacific carriers, such as Singapore Airlines, was driven by strong export sales that had in turn boosted freight revenues as commercial flights shipped tonnes of goods as well as passengers.

“With Asia we have seen tremendous growth in the cargo business. Asia is exporting a lot and Asian airlines rely heavily on freight revenues.
For some airlines, it represents 40% of turnover,” said Pearce.

Iata said that renewed confidence across the industry will have an impact next year as a glut of aeroplane orders drives down fares and profits. Around 1 400 new jets are expected to join the 24 000-strong global fleet in 2011, representing a 6% increase in seats.

Demand would increase by 5% next year, Iata said, creating a discrepancy between supply and demand that will put downward pressure on yields—or average fares.
Forecasts for fuel costs, which can fluctuate wildly and account for a quarter of airline expenditure, are positive for 2011.

Iata said it did not expect fuel prices to deviate substantially from the current $88 a barrel.

A sharp spike in fuel costs in 2008 saw the industry swing from a profit of $14,7-billion the year before to a loss of $36-billion.—Guardian News & Media 2010

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