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Airlines forecast profits to jump to record high

Published:Tuesday | January 7, 2014 | 12:00 AM

The global airline industry expects its profits to jump to a record high next year, helped by falling jet fuel prices, rising travel demand and cost-cutting.

The International Air Transport Association said it forecasts a profit of US$19.7 billion - well above the US$12.9 billion expected this year and the US$7.4 billion made in 2012.

But the Geneva-based group, which represents 240 airlines, or 84 per cent of total air traffic, noted margins are dropping.

This year's profit would come from projected revenues of US$743 billion. By contrast, 2010's US$19.2 billion profit was made on revenues of just US$579 billion.

Tony Tyler, director-general and CEO of IATA, said that the profit would amount to a little less than US$6 per passenger.

"To put that into perspective, the McDonald's down the road here in Geneva will make about the same amount of profit by selling four Happy Meals at a cost in Geneva of US$30," Tyler said in December.

That kind of margin, at 20 per cent, is well out of reach for airlines, he said.

"It begs the question of whether US$6 per passenger is a reasonable reward for airlines if you consider the technology, skills and capital that is invested," he said.

Jet fuel high

Passenger traffic has been expanding by about 5-6 per cent and jet fuel prices remain high, but below their 2012 peak, Tyler said.

The US$12.9 billion net profit the industry expects for 2013, based on US$708 billion in revenue, is itself a significant improvement on the group's earlier forecasts.

He attributed that to "a slight fall in the high price of oil" and the efficiencies of mergers and joint ventures along with more success at cutting costs. Mare airlines, for example, is charging passengers separately for food, baggage and other items.

North American airlines is expected to make the biggest profit next year - US$8.3 billion, up from US$5.8 billion this year - but see only a modest increase in demand for flight travel.

Carriers in Europe, where the economy has fared worse than other developed markets, are expected to have smaller profits - US$3.2 billion in 2014 from US$1.7 billion this year. But they are due to enjoy a sharper recovery in passenger traffic as the recession ends in some countries.

The highest growth in demand is forecast in emerging markets in Asia, the Pacific region, the Middle East, Latin America and Africa.

Asian airlines should see profits hit US$4.1 billion next year, ending a three-year drop in earnings, while the Middle Eastern ones should see steady growth - to US$2.4 billion from US$1.6 billion.