A revised outlook for 2012

IATA has released its revised industry outlook for 2012, indicating that global industry profits are expected to be $3.0 billion, unchanged from the last update in March. The airline industry association notes that a fall in oil prices, stronger than expected growth in passenger traffic and a bottoming out of the freight market are driving some improvements in the profitability outlook. However, IATA also said that this is offset by the continued and deepening European sovereign debt crisis, which has led markets to expect a further deterioration and damage to economic growth, the adverse impact of which has been built into this forecast. It will also be the second year of declining returns since airline profits peaked in 2010 at $15.8 billion with a net profit margin of 2.9%. In 2011, industry profits fell to $7.9 billion for a 1.3% net profit margin. This year’s projected $3.0 billion industry profit would yield a net profit margin of just 0.5%. Compared with the previous forecast in March, North American and Latin American carriers are expected to see improved prospects. The outlook for African carriers is unchanged. But the outlook for European, Asia-Pacific and Middle Eastern carriers has been downgraded, with European losses now expected to be $1.1 billion (nearly double the previously forecast $600 million loss). Tony Tyler, IATA’s director general and CEO, said that: “The $3.0 billion industry profit forecast has not changed. But almost everything in the equation has. Demand has been better than expected, so far this year. And fuel prices are now lower than previously anticipated, but that’s on the expectation of economic weakness ahead. The Eurozone crisis is standing in the way of improved profitability and we continue to face the prospect of a net profit margin of just 0.5%.” IATA’s boss also pointed out that: “Although airlines face the common challenges of high fuel prices and economic uncertainty, the regional picture is diverse. Carriers in the Americas are seeing improved prospects for 2012. The rest of the world is seeing reduced profitability. For European carriers, the business environment is deteriorating rapidly resulting in sizable losses.”