Dubai: Improved passenger traffic growth of 8.9 per cent could drive the global aviation industry's performance to a record profit of $15.1 billion (Dh55.41 billion) this year, said the global aviation industry watchdog the International Air Transport Association (IATA) in its revised outlook for 2010, up from the $8.9 billion forecast in September.
However, net profit for next year is projected to fall to $9.1 billion, but up from the $5.3 billion forecast in September, due to increased fuel costs as crude prices have been flirting with $90 a barrel.
Net margins remain weak at 2.7 per cent for 2010 and may fall to 1.5 per cent in 2011.
"Middle East carriers are expected to see 2010 profits of $700 million shrink to $400 million in 2011. It will be the fastest growing region in both 2010 and 2011. But the pace of demand growth will halve from 21.5 per cent in 2010 to 10.5 per cent in 2011," IATA said in a report yesterday.
John Siddharth C.P, Industry Analyst, Aerospace & Defence Practice, South Asia & Middle East, Frost & Sullivan, told Gulf News: "American and European companies are looking towards emerging markets to expand their businesses. The geographic and economic aspects of the Middle East have attracted several international companies to this region.
"The Middle East is also a preferred business hub due to the world-class infrastructure developed by the region's governments. An outcome of a recent survey revealed that the UAE is the most preferred business hub within the region. Most of the aviation companies have their regional offices in the Middle East."
Giovanni Bisignani, IATA's Director General and CEO, said: "Our profit projections increased for both 2010 and 2011 based on an exceptionally strong third quarter performance. But despite higher profit projections, we still see the recovery pausing next year after a strong post-recession rebound. And the two-speed nature of the recovery is unchanged with European airlines continuing to under-perform other regions,"
Profit improvement
Bisignani also characterised the improvements in terms of profit margins, which continue to disappoint. "Margins remain pathetic. With a 2.7 per cent net margin in 2010 shrinking to 1.5 per cent in 2011, we are nowhere near covering our cost of capital. The industry is fragile and balancing on a knife edge. Any shock could stunt the recovery, as we are seeing with the results of new or increased taxation on airlines and travellers in Eur-ope," said Bisignani.
The $6.2 billion increase in IATA's projection for the 2010 net profit (compared to the September forecast) is equal to just 1.1 per cent of the industry's projected $565 billion in revenues.
"Any increase in profits is a welcome step in the right direction. But the fact that we can increase our profit forecast by 70 per cent and still be left with a net margin of just 2.7 per cent shows just how far this industry has to go to achieve a normal level of profitability," said Bisignani.
Major drivers for the improved 2010 forecast are:
Passenger traffic growth of 8.9 per cent (compared to 7.7 per cent previously forecast). Strong passenger yield growth of 7.3 per cent (unchanged from the previous forecast). Revenue growth to $565 billion (an improvement of $5 billion on the previous forecast).
An average annual oil price in line with previously projected $79 per barrel (Brent). "The third quarter of 2010 was exceptionally positive in terms of passenger traffic volume. Airlines met increased demand by utilising their fleets more intensely," said Bisignani.
Forecast: Recovery will pause
"The recovery cycle will pause in 2011. Although the $9.1 billion profit projection for 2011 is better than we had previously forecast, next year the industry will face tougher conditions than what we are experiencing today," said Giovanni Bisignani, IATA's Director General and CEO.
The improvement comes from stronger traffic growth — passenger and cargo demand is expected to grow by 5.2 per cent and 5.5 per cent respectively. This is better than the 4.9 per cent and 5.3 per cent previously forecast.
Yields are expected to grow by 0.5 per cent for passenger traffic. Cargo yields are expected to remain flat.
Fast facts: Asia-pacific to steal show
All regions are following the global trend of reduced profitability in 2011 compared to 2010, IATA said.
North American carriers will see a 2010 profit of $5.1 billion decrease to $3.2 billion in 2011. Since 2007, the weak US economic recovery will limit demand increases to 3.7 per cent (below the global average of 5.3 per cent) while capacity will increase by 4.6 per cent, driving the decrease in profitability.
Asia-Pacific carriers will post the largest profit in 2010 at $7.7 billion, falling to $4.6 billion in 2011.
European carriers will be the industry laggard among the major regions with a $400 million profit in 2010, shrinking to $100 million in 2011. Improvements from the previous forecast are based primarily on the strength of long-haul operations that take advantage of robust growth in other regions.
Latin American carriers will see their $1.2 billion profit in 2010 cut to $700 million in 2011.
African carriers will see 2010 profits of $100 million move to break-even in 2011.
What do you think has contributed to this increase in profits? Have you been travelling more than normal the last few years? Why?
