World aviation body projects jump in airline profit

Despite the continued high fuel prices and a slowing world economy, airline profits and cash flows held up at levels similar to 2006/2007, when economic growth was stronger and oil prices lower.

The airlines’ cost-cutting actions and improved industry structure generated the better than expected financial performance, Iata said.

Iata has also revised up its forecast for industry profits in 2012 from $4.1 billion (Sh352.6 billion) to $6.7 billion (Sh576.2 billion).

It last gave a 2012 forecast outlook in early October. “I think we are past the low point, which was earlier this year,” Iata chief economist Brian Pearce said. Iata’s profit improvement for 2013 is driven by slightly higher economic growth and slightly lower fuel prices.

However, expectations for an acceleration of global economic growth next year have diminished.

Although the crude oil price forecast is a little lower, in line with lower economic growth, the refiners crack spread is wider, so the cost of jet fuel is a little higher in the revised forecast.

Net profit margin

“It is of course good news that the outlook is moving in a positive direction, but let’s keep the figures in perspective,” Tyler said.

“After taking in an expected $637 billion in revenues, a net profit of $6.7 billion is a net profit margin of one per cent. And $8.4 billion on expected revenues of $659 billion in 2013 will mean a net profit margin of 1.3 per cent.”  The industry is keeping its head above water.

 US airlines continue to improve their profitability while performance in Asia-Pacific is mixed, but overall profitability has not deteriorated as much as expected, despite the weakness of cargo markets.

 In Europe, where home markets have been damaged by the euro-zone crisis, performance has improved although Iata still expects the regions only to break even.

In 2013, Iata predicts that airlines will carry 3.1 billion passengers – breaking through the three billion mark for the first time in history.

Meanwhile, the Australian Competition and Consumer Commission  has given its conditional approval of the proposed Qantas Airways and Emirates alliance.

The antitrust regulator said in a statement that the two airlines would be allowed to “cooperate on passenger and freight operations across their networks.”

However, it wants to restrict cooperation between the airlines on flights between Australia and New Zealand to ensure that an acceptable level of service is maintained.

Sydney-based Qantas said it expects final approval of the partnership by March next year.

“Our customer research has shown very strong support for the Qantas and Emirates partnership, particularly in terms of increasing one-stop access to Europe, cutting travel time and offering frequent flyer benefits,” Qantas Chief Executive Officer Alan Joyce said in a statement.

Partnership with Qantas

Emirates president Tim Clark said the partnership with Qantas means the Dubai based airline can add regional destinations like the Gold Coast and Hobart to the growing list of places we offer Emirates customers worldwide.

 “The two airlines said they have already “started initial preparations that do not require regulatory approval, including connecting IT systems, designing frequent flyer benefits and establishing an operational base for Qantas in Dubai,” Clark said.