The world’s airlines face a more difficult year in 2012 despite an upgrading in profit expectations for 2011 from $4 billion to $6.9 billion.
The warning came from IATA which described profitability as still “exceptionally weak” at a net margin of just 1.2% on total revenues of $594 billion, despite the improvement in forecast figures.
IATA is projecting profits to fall to $4.9 billion on revenues of $632 billion on a net margin of just 0.8%, with European carriers predicted to struggle the most.
The airline body called on the UK government to rethink plans to further tax the industry. IATA’s forecast is built around global projected GDP growth of 2.5% in 2011 dropping to 2.4% in 2012.
Airline financial performance is closely linked to the health of world economies. Whenever GDP growth has slowed below 2.0% the airline industry has lost money, according to IATA.
“We will be perilously close to that level at least through 2012. The industry is brittle. Any shock has the potential to put us in the red,” said director general and chief executive Tony Tyler.
“Airlines are going to make a little more money in 2011 than we thought. That is good news. Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement.
“But we should keep the improvement in perspective. The $2.9 billion bottom line improvement is equal to about a half a percent of revenue. And the margin is a paltry 1.2%. Airlines are competing in a very tough environment. And 2012 will be even more difficult.”
The fourth quarter of 2011 and the first half of 2012 may well see the weakest point for air transport markets, IATA believes.
Tyler added: “It looks like we are headed for another year in the doldrums. With business confidence declining, it is difficult to see any potential for significant profitable growth.
“Relatively stronger economic growth and some rebound in cargo will help Asia Pacific airlines to maintain their 2012 profits close to 2011 levels at $2.3 billion.
“The rest of the industry will see declining profitability. And the worst hit is expected to be Europe where the economic crisis means the industry is only expected to return a combined profit of $300 million. A long slow struggle lies ahead,” warned Tyler.
“As governments seek to re-start troubled economies, a strategic approach to aviation policy would deliver broad economic benefits. Every plane that takes off is a catalyst for economic growth and prosperity.
“Governments must carefully evaluate the negative impact of the current high levels of taxation, absolutely resist increases or new taxes, and develop policies that support aviation’s growth with efficient infrastructure.
“Time and again aviation has shown its resilience. People need and want to travel. Now is the time to harness the economic possibilities that this presents,” said Tyler.