Net income will be equal to 0.6 percent of sales, better than the 0.5 percent predicted in June, according to IATA, whose members account for 84 percent of air traffic. Profit will still be less than half the $8.4 billion achieved in 2011, it said.
IATA raised its forecast as carriers in Asia and the U.S. posted improved numbers in the three months through June, with Singapore Airlines increasing net income for the first time in seven quarters and Delta Air Lines and US Airways Group beating analyst estimates. Europe is the only region bucking the trend, with a loss of $1.2 billion forecast for the year, $100 million worse than previously predicted.
"The industry has re-shaped itself to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating," IATA Chief Executive Officer Tony Tyler said at a press briefing in Singapore. "The industry's profitability still balances on a knife-edge, with profit margins that do not cover the cost of capital."
Carriers have been cautious in adding seating, with traffic increasing by 1.4 percentage points ahead of capacity over the first eight months, IATA said.
Improved asset utilization has helped bolster yields, a measure of fares, though tight corporate budgets mean business travel is becoming more price sensitive, encouraging "a shift away from the premium cabin back towards economy," IATA Chief Economist Brian Pearce said at the briefing. Premium traffic fell 0.5 percent in July as economy travel increased 3 percent.
The trade group expects carriers' earnings to increase to $7.5 billion next year, representing a 1.1 percent margin on sales of $660 billion. That's based on global gross domestic product advancing 2.5 percent, it said in a statement.
"Carriers have had some relief, if modest, on fuel prices recently, and despite many turbulent economies, long-haul premium traffic has in many cases remained robust," said airline analyst John Strickland, director of JLS Consulting in London. "Europe's ongoing economic malaise is reflected in the restructuring exercises being undertaken there."
Air France-KLM Group and Deutsche Lufthansa are cutting jobs and reorganizing operations as they seek to pare costs, while British Airways owner International Consolidated Airlines Group is seeking to slash expenses at Spanish arm Iberia.
In addition to the sovereign debt crisis that's causing the 17-nation euro area's economy to contract, the region is also "plagued by high taxes, inefficient air traffic management infrastructure and an onerous regulatory environment," Tyler said. European airlines are also expected to suffer a loss in 2013 as well, the only region likely to lose money, IATA said.
Asia-Pacific carriers will probably post a profit of $2.3 billion in 2012, $300 million better than the June forecast, as easing cargo demand is offset by robust performance by passenger operations, IATA said. China's domestic market expanded by 9.4 percent in the eight months through August, it said.
North American airlines will probably post a profit of $1.9 billion, versus an earlier prediction of $1.4 billion, while Latin American carriers will have net income of $400 million, similar to the previous forecast. The regions are they only two expected to boost profitability compared with 2011, IATA said.
Rising kerosene prices will add $1 billion to the industry fuel bill, which will grow to $208 billion, according to IATA, which sees crude averaging $110 per barrel for the year.
Tyler said that the trend toward cutting costs via consolidation is likely to continue, albeit at a modest pace.
Global passenger demand may rise by 5.3 percent this year, IATA said, revising its June prediction of 4.8 percent, before the pace of growth decelerates to 4.5 percent in 2013.
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