Air travel is one of the most active sectors in the business world. The profit of commercial airlines expresses the well being of economic and business activity in a particular part of the world. The importance of international air travel with regards to commerce cannot be underrated.
Airlines in the world are struggling hard to raise profitability in the business but the time and climate appears not to be favorable for them. Since the last eleven years, the aero planes have flown up in a state of skyrocketing fuel prices, global economic, financial recession and political upheaval.
Weaker global economic growth prospects are placing further force on the world’s airlines and their investors. Airline industry profits in second quarter 2011 were down by around 60 percent on 2010 levels, according to industry grouping, IATA.
The year 2011, profitability remained feeble but unaltered at an estimated $6.9 billion for a net margin of 1.2 percent. Looking ahead to 2012, IATA has lowered its central forecast for airline profits from $4.9 billion to $3.5 billion for a net margin of 0.6 percent.
High jet fuel prices continue to pressure the aviation industry, while a moderation in travel volumes and declining freight demand are also of great concern.
The Eurozone crisis especially puts severe downside risk on the 2012 outlook as depicted by the published OECD economic outlook. In a dreadful case scenario, should the Eurozone crisis develop into a height of a banking crises and European recession, IATA estimates that the global aviation industry could suffer losses exceeding $8 billion in 2012.
The biggest risk facing airline profitability over the year 2012 is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis.
European carriers are facing the most challenging situation. Higher passenger taxes and weak home market economies have limited profitability in Europe. Yields have suffered and the base of strong demand grows more fragile as the sovereign debt crisis escalates.
North American carriers due to yield and load factor improvements has increased profitability to $2.0 billion (up from the previously forecast $1.5 billion).
Asia Pacific carriers also witnessed stronger growth though varied trading conditions. Japan’s domestic market still has not fully recovered from the March earthquake and tsunami, and load factors remain under pressure.
Airlines have improved load factors and profitability on China’s expanding domestic market. Forecast for the region has been upgraded by $800 million to a $3.3 billion profit.
Middle East carriers are expected to witness profits of $400 million (down from the previously forecast $800 million) as high fuel costs compressed profit margins on the more price sensitive long-haul traffic connecting over Middle Eastern hubs. In a similar pattern Latin American profits will see a downgrade to $200 million (from the previously forecast $600 million). African carriers are still expected to break-even.
Passenger demand is expected to grow by 4 percent (down from previously forecast 4.6 percent, while cargo is expected to show flat growth (down from the previously forecast 4.2 percent expansion).
Passenger and cargo yields are expected to remain flat in 2012. While this is unchanged for cargo, passenger yields were previously forecast to grow by 1.7 percent.
Fuel costs are comparatively unchanged from the previous forecast at $198 billion. That is based on oil at $99 per barrel (against a previous forecast of $100 per barrel).
Industry revenues are expected to grow by 3.7 percent to $618 billion. This will be outstripped by cost increases of 4.5percent to $609 billion.
According to Boeing Seattle Company global gross domestic product (GDP) is projected to grow at an average of 3.3 percent per year for the next 20 years. Reflecting this economic growth, worldwide passenger traffic will average 5.1 percent growth and cargo traffic will average 5.6 percent growth over the forecast period.
To meet this increased demand for air transportation, the number of airplanes in the worldwide fleet will grow at an annual rate of 3.6 percent, nearly doubling from around 19,400 airplanes today to more than 39,500 airplanes in 2030. Airplane deliveries, for fleet growth and replacement of aging airplanes, will total 33,500 over the next 20 years, with a value of US$4.0 trillion.
ATA said the best possible outcome – based on EU governments “muddling through” and resolving the Eurozone crisis – would be for global airlines to generate total profits of $3.5bn in 2012. That estimate is down from the $4.9bn.