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Karamjit Kaur

The Straits Times

Publication Date : 21-03-2013

Rising business confidence and higher global industrial output should boost airline profits this year, said an international industry body.

The International Air Transport Association (Iata) now expects airlines to post collective earnings of US$10.6 billion, higher than its December estimate of US$8.4 billion.

This will boost profit margin to 1.6 per cent, up from the previously forecast 1.3 per cent.

It is the fourth time since last June that the association, which gives regular profit estimates, has revised its forecast upwards.

Iata director-general and chief executive Tony Tyler said yesterday that profits "are taking a small step in the right direction".

"Against a backdrop of improved optimism for global economic prospects, passenger demand has been strong and cargo markets are starting to grow again."

The upturn is a relief for cargo carriers and freight forwarders hit by the economic slowdown.

But economic optimism is also pushing fuel prices higher, said Tyler.

"We are seeing a $12 billion improvement in revenue, and a $9 billion to $10 billion increase in costs - most of which is related to fuel."

Jet fuel is now expected to average $130 a barrel for the year, instead of $124 which was the estimated cost three months ago. This will increase the industry's fuel bill to $216 billion, a $6 billion jump from December's expectations.

The other concern is the euro zone crisis, which could take a turn for the worse, he added, noting that the unfolding situation in Cyprus is a risk factor "that cannot be ignored".

Iata said Asia-Pacific airlines are expected to benefit the most from an expected upturn in the cargo business. Regional carriers account for about 40 per cent of the global demand for air cargo.

Regional airlines including Singapore Airlines and Cathay Pacific should end the year with a total of $4.2 billion in net profit, Iata said, $1 billion more than its December forecast.

Despite the more positive outlook, the future remains challenging for Asian carriers, said Andrew Herdman, director-general of the Association of Asia Pacific Airlines.

In a recent note, he said airlines will continue to carefully manage capacity while responding to new market opportunities.