IATA has downgraded its profit forecast for Asia-Pacific carriers for 2011, citing relatively low fuel hedging as well as a likely slow down in China.
The trade body predicts that Asia-Pacific carriers will deliver a collective profit of US$3.7 billion, down from a previous forecast of US$4.6 billion, and also substantially lower than the US7.6 billion estimated for 2010.
The new estimate is still the highest in the industry, as is the expected combined operating margin of 4.6%.
“While the strong economic growth in the region is still driving profitability, inflation fighting measures in China are slowing trade and air cargo demand. The key reason for the downgrade from December’s forecast is that the region is more exposed to higher fuel prices, due to relatively low hedging on average,” says IATA.
The Middle East region, meanwhile, has been upgraded, despite the political turmoil in the region. Carriers there are expected to make a profit of US$700 million, up from a previous US$400 million estimate – although again lower than an expected 2010 figure of US$1.1 billion.
While political instability in the region is expected to take its toll in Egypt, Tunisia and Libya which combined account for about 20% of the region’s international passenger traffic, IATA expects this to be more than balanced by the Gulf area as the latter region’s economy benefits from high oil prices and continues to win long-haul market share. IATA also says that load factors have also improved significantly for these airlines, as new capacity is being added at a slower pace than demand increases.
Overall, IATA downgraded its global airline industry outlook for 2011 to US$8.6 billion from the $9.1 billion it estimated in December 2010 – meaning that if the Asia-Pacific region was taken out of the equation there would be an overall profit upgrade.
IATA notes that the 2011 global estimate is a 46% fall in net profits compared to the US$16 billion (revised from US$15.1 billion) earned by the industry in 2010. On expected industry revenues of US$594 billion, the $8.6 billion 2011 profit equates to a net profit margin of 1.4%.
“Political unrest in the Middle East has sent oil over US$100 per barrel. That is significantly higher than the US$84 per barrel that was the assumption in December. At the same time the global economy is now forecast to grow by 3.1% this year—a full 0.5 percentage point better than predicted just three months ago. But stronger revenues will provide only a partial offset to higher costs. Profits will be cut in half compared to last year and margins are a pathetic 1.4%,” said Giovanni Bisignani, IATA’s director general and CEO.
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