Middle East continues to outperform expectations in latest IATA global forecasts

In its first look at 2012, IATA is projecting profits to fall to $4.9 billion on revenues of $632 billion for a net margin of just 0.8%.  

“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,” said Tony Tyler, IATA’s Director General and CEO. “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,” said Tyler.

IATA’s forecast is built around global projected GDP growth of 2.5% in 2011 falling 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. “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 Tyler.  

He said that Passenger demand has been stronger than anticipated given the gloomy economic outlook. The forecast for the year stands at 5.9% growth (up from 4.4% projected in June). In the year to July, passenger volumes were up over 6% on previous levels. This would bring total passenger numbers to 2.833 billion (up from the previous forecast of 2.793 billion). World trade basically stopped growing at the end of 2010. The strong travel trend in 2011 is built on residual confidence from economic optimism at the beginning of the year. While some economies may be more durable—China for example—the overall outlook is for a weaker end to 2011.

Air freight has stagnated since the start of the year. IATA slashed its full-year volume growth projection from 5.5% to 1.4%. Airlines are expected to carry 46.4 million tonnes of cargo in 2011 (down from the previous forecast of 48.2 million). Air freight volumes reached their post-recession peak in May 2010, largely driven by re-stocking.  July’s traffic was 4% lower than that level. It appears unlikely that a revival in air freight will begin before 2012.

Middle East carriers are seen as the second largest beneficiary of the better than expected passenger demand. The region’s carriers are expected to make $800 million, up from the $100 million projected in June. Holding up against potential demand shocks associated with political instability, the region’s carriers grew passenger traffic 8.3% compared to a capacity increase of 9.0% in the first seven months of this year. An EBIT margin of 3.0% is projected, IATA said.

African carriers are expected to break even, from a $100 million loss previously forecast. While parts of the continent’s economy continue to grow robustly, the challenges of political unrest in North Africa continue to severely dent traffic and overall performance. An EBIT margin of 0.7% is the weakest among the world regions.