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IATA sees airlines’ profits soaring as jet fuel costs ease

(Philippine Star) MANILA, Philippines - The International Air Transport Association (IATA) has revised upwards the aviation industry financial outlook for this year and next year amid softening jet fuel prices in the world market.
IATA director general and chief executive officer Tony Tyler said the group is now expecting a net profit of $12.9 billion for the global airline industry instead of the September projection of $11.7 billion.
Tyler added that next year’s financial outlook was also revised upwards to $19.7 billion from $16.4 billion to reflect the lower jet fuel prices over the forecast period, as well as improvements to the industry’s structure and efficiency already visible in quarterly results this year.
He pointed out that passenger markets continue to outperform the cargo business which remains stagnant both on volumes and revenues.
“Overall, the industry’s fortunes are moving in the right direction. Jet fuel prices remain high, but below their 2012 peak. Passenger demand is expanding in the five to six percent range – in line with the historical trend,” Tyler stressed.
He added that the efficiencies gained through mergers and joint ventures are delivering value to both passengers and shareholders, while product innovations are growing ancillary revenues. 
IATA expects 2014 to be a second consecutive year of strengthening profitability beginning from 2012 when airlines posted a net profit of $7.4 billion).
Industry net profit margins remain weak at 1.1 percent of revenues in 2012, 1.8 percent in 2013, and 2.6 percent in 2014.
The anticipated $19.7 billion profit in 2014 would come on projected revenues of $743 billion.
While this would be the largest absolute profit for the airline industry – outstripping the $19.2 billion net profit that the industry returned in 2010 – it is important to note that 2010 revenues were $579 billion.
The net profit margin in 2010 was 3.3 percent compared to the projected 2.6 percent expected for 2014.
“We must temper our optimism with an appropriate dose of caution. It’s a tough environment in which to run an airline. Competition is intense and yields are deteriorating,” he said.
He explained that cargo volumes have not grown since 2010 and cargo revenues are back at 2007 levels.
“The passenger business is expanding more robustly. Some airlines will outperform our estimates and others will underperform. But, on average, airlines will only make a net profit of about $5.94 per passenger in 2014,” he said.
IATA outlook forecasts are estimates of the aggregate performance of the global air transport sector and should not be taken as in indicator of individual airline performance that could vary greatly from the global outlook.
Global output as measured by gross domestic product (GDP) is expected to expand by 2.7 percent next year from two percent this year translating to robust passenger demand of 3.3 billion next year from 3.1 billion this year.
Following easing of tensions in Iran, oil prices are expected to see a slight downward movement to $104.5 per barrel next year from $108.2 per barrel this year.
IATA said the positive trend would be amplified by a reduction in the crack spread of jet fuel resulting in savings of $2 billion to $211 billion this year and $5 billion next year to $210 billion.

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