Airline Profit Forecast Is Cut for 2013: Outlook for Asian Carriers Pulls Down Industry

September 23, 2013, 10:30 a.m. ET

By DOUG CAMERON

The Wall Street Journal

The full-year profit forecast for Asian airlines tumbled a third over the past quarter as higher oil prices combined with sluggish economic growth, the industry's global trade body said.

The International Air Transport Association said Monday that global industry profits are expected to rise to $11.7 billion this year from an estimated $7.6 billion in 2012. The latest forecast was down $1 billion from the IATA's projection issued in June.

The actual forecast, which is heavily skewed by results at the biggest airlines, is less significant than its downward revision, which highlights the challenges faced by some carriers. Many of them underpin the bulging order books at Boeing Co. and European Aeronautic Defence & Space Co.

Tony Tyler, the IATA's top executive, cited slower growth in such markets as India, Brazil and China. He was more optimistic about the outlook for next year, forecasting that global industry earnings would rise to $16.4 billion, a performance that would be second only to the record profits recorded in 2010.

The 2013 projection for carriers based in North America, Europe and the Middle East all improved from the June outlook, while Latin America remained flat. But Asian airlines suffered slower growth and a flat cargo market.

The IATA downgraded its 2013 profit forecast for Asian carriers to $3.1 billion from $4.6 billion.

The trade group cut its forecast for global air-cargo growth to 0.9% for this year, down from a June projection of 1.5%. Yields were forecast to be down 4.9% from last year; operators have lost pricing power because more cargo capacity is being offered in passenger aircraft, on top of that provided by freighter jets.

Concerns are growing about the airfreight market, an important revenue generator that has experienced essentially no growth over the past 18 months. Weak demand for imports, particularly in Europe, has left cargo jets and the freight space on passenger planes less than half full.

Industry operating margins were projected at 3.2% this year, well below the industry's average cost of capital. Airlines and leasing companies will have to finance an estimated $90 billion in deliveries of new planes this year, and more than $100 billion in 2014.

Source:  http://online.wsj.com