Iata trims forecast for second time this year

THE International Air Transport Association (Iata) has trimmed its industry forecast for the second time this year, projecting a combined net profit of US$18 billion for global carriers, owing to slowing trade and weaker business confidence linked to China's economy.

This is on the back of revenues of US$746 billion, which translates to a thin profit margin of 2.4 per cent.

Iata last cut its forecast by US$1 billion to US$18.7 billion in March, citing higher fuel costs, from an earlier estimate of US$19.7 billion.

However, profitability has been on an upward trend overall, gaining momentum from US$6.1 billion in 2012 to US$10.6 billion in 2013 - no small feat for an industry which has clocked profits in only half the years since 1945.

"The good news is that airline profits are improving," said Iata director-general Tony Tyler, speaking at the Iata annual general meeting (AGM) in Doha yesterday. "The average return on invested capital today is 5.4 per cent - up from 1.4 per cent in 2008. But we are still far from earning the 7-8 per cent cost of capital that investors would expect. Airlines are, however, working towards solutions that deliver value to both customers and investors."

The AGM comes as the industry celebrates a hundred years of commercial aviation and three months after Malaysia Airlines' MH370 disappeared with 239 people onboard. Intensive multilateral search efforts have yielded little success in unearthing any signs of wreckage, turning a spotlight on the need for more stringent industry standards on global tracking capabilities.

Iata and the International Civil Aviation Organization (ICAO) are spearheading efforts on this front, with a taskforce of industry experts to deliver a draft of recommendations to ICAO by September. The immediate focus will be on tracking aircraft, rather than real-time streaming of flight data.

"Tracking aircraft is the most important, urgent first step and something that can be done relatively easily. There are a lot more issues that come into play when you look at streaming data," noted Mr Tyler, adding that streaming would result in "masses and masses of data" which may not be manageable.

Industry players have also highlighted that the cost burden to airlines that comes with changes to global standards will have to be considered as well.

Mr Tyler did not pin down a firm date as to when the enhanced standards would kick in.

Qatar Airways chief Akbar Al Baker reckons the taskforce will also explore ways to make sure systems on the aircraft cannot be switched off. In the case of MH370, the Aircraft Communications Addressing and Reporting System (Acars), which enables ground stations and the aircraft to relay messages to each other, was disabled not too long after take-off.

In its 2014 update yesterday, Iata projected that all airlines are expected to post higher profits this year over last year, although performance will vary from region to region.

Asia-Pacific carriers are expected to earn US$3.2 billion this year, down from March's estimate of US$3.7 billion, weighed down in part by a challenging Indian aviation market. But this also represents an increase from the US$2 billion seen last year, thanks to a pick-up in the cargo market where Asia-Pacific carriers hold the majority share. Passenger traffic in the region is slated to expand by 7.4 per cent this year, against 7 per cent growth in capacity, pushing load factor up 0.2 percentage point to 67.3 per cent.

North American carriers - which have undergone restructuring and are building up ancillary revenues - will deliver the strongest financial performance this year with a bottomline of US$9.2 billion.

Africa will continue to remain the weakest region, just about remaining in the black with expected profits of US$100 million as intense competition and high taxes hamper performance.

Struggling with regulatory and infrastructure costs, European carriers will deliver a bottomline of US$2.8 billion this year, while the Middle Eastern airlines - among the fastest-growing in the world - will deliver a net profit of US$1.6 billion with a high profit per passenger of US$8.98.

Global passenger traffic is expected to remain firm at 5.9 per cent this year, inching up from 5.7 per cent last year, although premium traffic demand has eased in line with waning business confidence.

Cargo traffic, which started picking up in H2 2013, is also feeling the impact of softening world trade. Nonetheless, it is slated to expand at 3.1 per cent this year, up from 1.8 per cent in 2013.

Meanwhile, jet fuel - which makes up nearly 30 per cent of operating costs for airlines - will remain stable at over US$124 per barrel but stubbornly high by historical standards, resulting in a one per cent increase in the industry's fuel bill.