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Airline industry set for another good year

Publication Date : 13-03-2014

 

The airline industry is on track to deliver a second consecutive year of improved profitability, says the International Air Transport Association (IATA).

However, the industry outlook for 2014 was revised downward to a profit of US$18.7 billion from the previous forecast of $19.7 billion, IATA said in a statement.

Closer to home, the association said it expected Asia-Pacific airlines to post profits of $3.7 billion and earnings before interest and tax margin of 3.4%.

“This is an improvement over 2013, helped by a slightly better outlook for cargo markets. Airlines in this region have the largest share of the international air cargo market. However, the turmoil in foreign exchange markets earlier this year has adversely affected growth prospects for large economies in the region like India and Indonesia.

“Our forecast for the profits of airlines in this region in 2014 is US$400mil less than the previous projection,” it said, adding that the resulting adverse impact on passenger revenues more than offset the improvement in cargo.

The downward revision for the overall industry is mainly due to higher oil prices, which account for some 30% of the average airline cost structure.

Oil prices are now expected to average $108 per barrel (Brent), which is $3.50 per barrel above previous projections. Jet fuel prices are also expected to be higher at $124.60 per barrel.

Overall, fuel costs are expected to rise by some $3 billion to $213 billion compared to the December forecast. The added $3 billion in cost on the industry’s fuel bill is expected to largely offset stronger demand. Overall industry revenues are expected to rise to $745 billion.

“In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geo-political instability. Overall industry returns, however, remain at an unsatisfactory level with a net profit margin of just 2.5%,” said IATA director-general and chief executive officer Tony Tyler.

 

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