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Tough times continue for the global airline industry

3rd June 2013

By: Kim Cloete

Creamer Media Correspondent

  

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The price of fuel and a fragile world economy have impacted heavily on the global airline industry over the past year, with marginal improvement expected for the year ahead.

Last year, the airline industry generated $7.6-billion in net post-tax profits on revenues of over $680-billion. This year, airlines are expected to record a profit of $12.7-billion – a net profit margin of 1.8%.

“To put that into perspective we will earn $4 profit per passenger carried – less than the price of a sandwich,” the International Air Transport Association (Iata) director-general and CEO Tony Tyler told delegates at the association’s 2013 annual general meeting in Cape Town.

The industry made profits of $2.54 per passenger last year – the price of a cup of coffee.

Fuel costs – the largest cost to the airline industry – have increased by 55% since 2006. Together with the slowdown in the global economy, this had negatively impacted on the industry.

“The margins are still incredibly thin,” Iata chief economist Brian Pearce told a press conference. He said he expected the oil price, currently at $112/bl, to drop to $108/bl this year.

There are some other small signs of hope, with airline business confidence rising.

Tyler said airlines had become more confident of their prospects, with 73% of CFOs surveyed expecting their profits to improve over the next 12 months, compared with just 33% in early 2012.

Airlines have been attacking costs and improving efficiencies through industry programmes such as e-ticketing, as well as charging for extras such as prereserved seating and priority boarding.

Tyler said capacity was also being used more efficiently, with the industry load factor at a record high of 80.3%.

The cargo market has been hit hardest, knocked by sluggish trade in advanced economies, particularly in the European Union and Japan. “While travel volumes have continued to expand over the past four years, cargo is going nowhere,” said Tyler.

The market has shrunk since its 2010 peak and has been flat for the past 12 months.

In terms of regional performance overall, African airlines continue to be the weakest performers, with passenger loads below 70% and operating margins averaging less than 1%. While poor, it is an improvement on last year. 

Hope is coming in the form of rising export orders in emerging economies, but it is not enough yet to make a big impact on the global cargo picture.

Tyler described the current industry outlook as being “fragile [but] positive” for business confidence, freight and air transport generally.

Despite the challenges facing the industry, there’s no underestimating its potential and impact.

“With 3.1-billion people and more than 52-million tonnes of cargo expected to fly this year, air transport is a growing part of the fabric of modern life. Our activities generate some 57-million jobs, support $2.2-trillion in global business and facilitate $6.4-trillion in trade,” said Tyler.

“Looking ahead, the Asia-Pacific market could triple in size over the next 20 years. And you can only imagine the potential of Africa,” he added.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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