Let’s start with some positive news. IATA is forecasting improved profitability in 2014 across all regions with particularly strong performances among the North American, Middle Eastern and European carriers.
Even though IATA revised its industry profit forecasts downwards for 2013 from US$12.7 billion to US$11.7 billion in October, global airline performance has continued to improve towards the end of 2013 and remains strong, with passenger growth remaining robust at about 5%.
The IATA profit forecast for 2014 of US$16.4 billion profit on revenues of US$743 billion, compared to US$11.7 billion in 2013 and US$7.4 billion in 2012, is giving rise to cautious optimism across airline boardrooms and industry associations. Tony Tyler, IATA’s Director General, said on announcing the 2014 forecast:
“Overall, the story is largely positive. Profitability continues on an improving trajectory. But we have run into a few speed bumps. Cargo growth has not materialised. Emerging markets have slowed. And the oil price has had a dampening effect. We do see a more optimistic end to the year. And 2014 is shaping up to see profit more than double compared to 2012”.
With airline profitability reflecting broad economic trends, an upturn in business and confidence levels – in particular in the Eurozone, which is emerging from a deep recession, and in North America – is anticipated to feed through to an increase in passenger volumes. An airline confidence survey conducted by IATA in October 2013 reinforced the positive outlook for 2014, with 63% of CFOs at the major airlines forecasting improved profits next year.
IATA forecasts by region for 2014:
- European carriers are predicted to see a doubling of profits from US$1.7 billion in 2013 to US$3.1 billion in 2014, with particularly strong performances in the UK and German markets. Larger airline groups and airlines with well- developed long-haul operations are expected to outperform smaller carriers dependent on intra-European travel.
- North American carriers are expected to post profits of US$6.3 billion in 2014, compared to US$4.9 billion in 2013, driven by more efficient airlines performing better, following the recent rounds of consolidation and more international joint ventures.
- Middle Eastern carriers are expected to post profits of US$2.1 billion in 2014, compared to US$1.6 billion in 2013 – with improved performance supported by a growth in long-haul travel via the region’s hubs.
- Asia-Pacific carriers are expected to post a modest improvement in profitability from US$3.1 billion to US$3.6 billion, coming largely from strong domestic growth in China and improved performance from Japanese carriers following their restructuring. However, the regional profitability forecast is dampened down by slower growth among the emerging economies.
- Latin American carriers are expected to post profits of US$1.1 billion in 2014, up from US$600 million profits in 2013, with improved performance being driven by restructuring of the region’s airlines, consolidation, and growth in the market between North and South America.
- African carriers are expected to post profits of US$100 million in 2014, compared to forecast losses in 2013 of US$100 million, with the entire African market remaining constrained by a restrictive regulatory environment, high operating costs and poor infrastructure, and African airlines continuing to lose market share to Middle Eastern long-haul carriers.
Tony Tyler urged policy makers to avoid dampening growth with further regulations:
“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. When market forces drive action we get results that both strengthen the industry and benefit the consumer. Quite simply, stronger airlines can invest more in improving connectivity and service innovations. If more policy makers incorporated that into the cost-benefit analysis when developing regulations, we would have a much healthier industry generating even broader economic benefits.”