The International Air Transport Association is lifting its profit forecast for the global airline industry in 2013 to $12.7 billion, thanks partly to lower oil prices and average load factor rising above 80% for the first time.
The latest forecast, released at IATA’s annual meeting in Cape Town, is $2.1 billion higher than its last prediction issued in March. It is also a significant improvement from the 2012 profit of $7.6 billion. The trade group says it will be the third-highest annual profit since 2001, behind previous cycle peaks in 2007 and 2010.
With its usual caveat that profitability margins remain slim, IATA says there has been a “solid performance improvement story over the last seven-to-eight years.” It highlights more efficient use of assets as the main contributor to this, as the 2013 load factor is tipped to rise to 80.3% - six percentage points higher than 2006 levels. Ancillary revenues are expected to contribute more than 5%, up from 0.5% in 2007.
IATA Director General Tony Tyler notes that the profit improvement is particularly striking given that the broader economic outlook is actually weaker. However, an expected year-on-year drop in average oil prices will offset this, IATA believes. The forecast assumes oil prices averaging $108 per barrel in 2013, down slightly from the average of $111.8 billion average in 2012.
The net profit margin is expected to improve to 1.8%, although IATA stresses this is still a relatively weak margin. Likewise, the expected return on invested capital of 4.8% is still “materially lower than the 7%-8% average cost of capital required for the industry,” says Tyler.
For this year, passenger capacity is expected to rise by 4.3%, which is lower than the predicted 5.3% demand growth. All regions are forecast to be profitable in 2013.