Airlines recover, but Europe lags

The International Air Transport Association (IATA) has again revised its 2010 industry forecast and is now projecting a profit of $8.9 billion (up from its earlier projection of $2.5 billion).

Yield improvements are the most important factor driving the improved outlook. On top of last year’s capacity cuts, capacity expansion is lagging behind demand improvements. The result is higher load factors and some pricing power for airlines. More business travellers on premium seats are also boasting average yields, which are now expected to grow by 7.3% for passengers and 7.9% for cargo.

It seems like a lot of profit, but it’s only a small part of the over $50 billion lost over the last decade.

And there are big regional variations. Recovery is strongest in the Asia Pacific region, which is predicted to produce record profits in the region of $5.2 billion.

North American carriers are now forecast to make $3.5 billion (up from $1.9 billion) where airlines have seen a much larger rise in yields than in other regions.

European airlines are expected to still be in the red, showing a loss of $1.3 billion, which is reduced from an earlier forecast of $2.8 billion. However, IATA notes, continuing economic weakness in the European economy and faltering consumer confidence continues to depress originating passenger traffic.

Looking out towards 2011, IATA is predicting that consumer confidence is not expected to pick up meaningfully as joblessness remains high in Europe and North America. Slower growth is expected to keep costs in check and oil prices are expected to remain constant at about $79 a barrel. But a surge of aircraft deliveries is expected to fuel capacity expansion of 6%, which is greater than the expected demand improvements. Overall profitability is expected to fall back to $5.3 billion.

So while progress has been made, it’s not dramatic, and the pressure remains on European carriers.

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September 29th 2010

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