Airlines industry may post $8.9 bn profit in 2010

NEW DELHI - The airline industry is likely to post $8.9 billion profit in 2010 helped by increased demand and “disciplined capacity management”, the International Air Transport Association (IATA) said Tuesday.

“The industry recovery has been stronger and faster than anyone predicted. The $8.9 billion profit that we are projecting will start to recoup the nearly $50 billion loss over the previous decade,” IATA’s Director General and CEO Giovanni Bisignani said in a statement.

According to IATA estimate, the industry’s profit will drop to $5.3 billion in 2011.

IATA, which represents 230 airlines comprising 93 percent of scheduled international air traffic, has revised its previous estimate. In June, IATA said it was expecting $2.5 billion profit.

The improved outlook for 2010 is being driven by a combination of factors. On the revenue side increasing demand and disciplined capacity management are leading to sharply stronger yields pushing revenues higher. At the same time, costs remain relatively stable.

“But a reality check is in order. There are lingering doubts about how long this cyclical upturn will last. Even if it is sustainable, the profit margins that we operate on are so razor thin that even increasing profits 3.5 times only generates a 1.6 percent margin,” said Bisignani.

“This is below the 2.5 percent margin of the previous cycle peak in 2007 and far below what it would take just to cover our cost of capital,” he added.

IATA is most bullish in its estimate on the industry in Asia-Pacific region. Asia-Pacific carriers are expected to post a $5.2 billion profit. This is better than the $3 billion recorded during the previous peak in 2007 and double the previously forecast $2.2 billion.

“The strong improvement is based on strong market growth and yield gains. Renewed buoyancy in air freight markets has been particularly important for airlines in this region, where it can represent up to 40 percent of revenues,” IATA said in a statement.

However, European airlines would continue to run in the red. Compared the June forecast, the prospects for Europe’s carriers improved from a loss of $2.8 billion to a loss of $1.3 billion, it said.

– Indo-Asian News Service