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Monday, September 23, 2013

IATA Downgrades 2013 Airline Profit Forecast by $1 Billion

Woodrow Bellamy III

Airlines across the globe are expected to post a profit of $11.7 billion for 2013, $1 billion less than previously forecasted, driven by weak performances in emerging markets, high oil prices and a slumping global air cargo market, the International Air Transportation Association (IATA) said Monday.
If airlines do achieve IATA's $11.7 billion forecast, it would still be an improvement from 2012's profit of $7.4 billion, though it would be less than the record breaking $19.2 billion profit achieved by IATA member carriers in 2010. 
"If we look at the cost side of the business, the biggest item is fuel. We expect it to be 31 percent of costs this year and 30 percent in 2014," said Tony Tyler, CEO of IATA. "The spike in oil prices from concerns over Syria has been largely offset by a slight softening of jet fuel prices. And the good news is that we expect a further decline next year. Jet fuel is expected to average at $126.4/barrel in 2013. That should fall slightly to $122.9 in 2014. A decline is good news. But the price is still high. For reference, the average price for jet kerosene in 2004 was $49.70/barrel."
North American carriers are expected to post $4.9 billion profits, the strongest among all regions in IATA's new downgraded 2013 forecast. The $4.9 billion would more than double the $2.3 billion profit posted by North American airlines in 2012, though IATA expressed concerns about this upward trend due to recent "unfounded objections to further consolidation by the U.S. Department of Justice," referring to the current lawsuit involving the American Airlines-US Airways merger. 
The forecast for Asia-Pacific carriers was downgraded from $4.6 billion to $3.1 billion, driven largely by slower growth among emerging economies in the region. 
Despite the downgraded forecast for 2013, IATA expects the industry to rebound in 2014 with profits of $16.4 billion with airlines projected to cary 3.3 billion passengers. 
"A $16.4 billion profit for transporting some 3.3 billion passengers means that airlines will retain an average of about $5.00 per passenger. That very simple calculation demonstrates that even a small change in the operating environment—a new tax or other cost increase  for example—could change the outlook quite significantly," said Tyler. 


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