US airlines to lead industry recovery in profits

AP News
Posted: Dec 13, 2012 9:21 AM

GENEVA (AP) — U.S. airlines will lead a recovery in the global sector's profits next year, mainly thanks to cost cuts and restructuring measures taken to address weak economic growth, the industry's trade group forecast Thursday.

Carriers in Asia, the Middle East and Latin America will also enjoy an improvement in earnings, while those in Europe are expected to only break even as they continue to suffer from the region's economic crisis.

The industry expects global net profits of $8.4 billion in 2013. It anticipates $6.7 billion for this year, based on strong second and third quarters — particularly for larger carriers — despite high fuel prices and weaker demand.

The 2013 results would still be below the $8.8 billion earned in 2011 and $15.8 billion in 2010. The net profit margin, at 1 percent, would also be well below the 7 to 8 percent officials say is needed to recover capital costs.

The International Air Transport Association's annual review focused on the impact of annual world economic growth falling below 2 percent and Brent crude oil trading at $109.5 a barrel.

"Airlines have adjusted to this difficult environment through improving efficiency and restructuring," said Tony Tyler, chief executive of the Geneva-based global trade group.

Tyler told reporters in Geneva that airlines' financial performance hinged partly on their size.

"Economies of scale are helping larger airlines to cope much better with the difficult environment than small and medium-sized carriers which continue to struggle," he said.

IATA, whose 240 member airlines carry 84 percent of all passengers and cargo, said the industry's overall revenue in 2013 is expected to rise to $659 billion from $637 billion this year, while costs will go up to $640 billion from $623 billion.

North American airlines are expected to do best in 2013, posting a combined net profit of $3.4 billion, ahead of $3.2 billion in Asia Pacific, $1.1 billion in the Middle East and $700 million in Latin America, the IATA estimated.

Tyler said airlines are expected to benefit from U.S. economic growth — forecast to be the strongest among developed economies — despite talk of a "fiscal cliff" of automatic tax hikes and spending cuts that the government could face.

Carriers in Europe and Africa, on the other hand, are among the worst off and expected to merely break even for 2012 and 2013.

Europe's airlines last turned a profit, of $400 million, in 2011, as the region's debt crisis weighs on demand for travel, the IATA estimated.

"The carriers in Europe are particularly gloomy, I would say, based on talks with CEOs," said Tyler.

The continuing financial uncertainty hovering over the European economy, high taxes and inefficient infrastructure will continue to plague the continent's industry next year, the trade group said.

"Certainly there are opportunities for further consolidation of airlines in Europe," said Tyler, adding that major carriers such as Lufthansa, KLM and International Airlines Group, despite their own struggles, may try to buy up some of the smaller airlines.

Meanwhile, global air freight markets are "very weak," Tyler said. Cargo demand is expected to increase by 1.4 percent in 2013, not enough to make up for the 2 percent decline suffered in 2012.