Airline profit forecast lifted to $4.1 billion on fares

  • By Kari Lundgren Bloomberg News
  • Monday, October 1, 2012 1:15pm
  • Business

SINGAPORE — Airlines will earn $4.1 billion in 2012, $1.1 billion more than last estimated, as capacity curbs and mergers help boost fares amid high fuel prices and sluggish demand, the International Air Transport Association said Monday.

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.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Lily Lamoureux stacks Weebly Funko toys in preparation for Funko Friday at Funko Field in Everett on July 12, 2019.  Kevin Clark / The Herald)
Everett-based Funko ousts its CEO after 14 months

The company, known for its toy figures based on pop culture, named Michael Lunsford as its interim CEO.

The livery on a Boeing plane. (Christopher Pike / Bloomberg)
Former Lockheed Martin CFO joins Boeing as top financial officer

Boeing’s Chief Financial Officer is being replaced by a former CFO at… Continue reading

Izaac Escalante-Alvarez unpacks a new milling machine at the new Boeing machinists union’s apprentice training center on Friday, June 6, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Boeing Machinists union training center opens in Everett

The new center aims to give workers an inside track at Boeing jobs.

Some SnoCo stores see shortages after cyberattack on grocery supplier

Some stores, such as Whole Foods and US Foods CHEF’STORE, informed customers that some items may be temporarily unavailable.

People take photos and videos as the first Frontier Arlines flight arrives at Paine Field Airport under a water cannon salute on Monday, June 2, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Water cannons salute Frontier on its first day at Paine Field

Frontier Airlines joins Alaska Airlines in offering service Snohomish County passengers.

Amit B. Singh, president of Edmonds Community College. 201008
Edmonds College and schools continue diversity programs

Educational diversity programs are alive and well in Snohomish County.

A standard jet fuel, left, burns with extensive smoke output while a 50 percent SAF drop-in jet fuel, right, puts off less smoke during a demonstration of the difference in fuel emissions on Tuesday, March 28, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
Sustainable aviation fuel center gets funding boost

A planned research and development center focused on sustainable aviation… Continue reading

Helion's 6th fusion prototype, Trenta, on display on Tuesday, July 9, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
Helion celebrates smoother path to fusion energy site approval

Helion CEO applauds legislation signed by Gov. Bob Ferguson expected to streamline site selection process.

Pharmacist John Sontra and other employees work on calling customers to get their prescriptions transferred to other stores from the Bartell Drugs Pharmacy on Hoyt Avenue on Wednesday, July 2, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Bartell Drugs location shutters doors in Everett

John Sontra, a pharmacist at the Hoyt Avenue address for 46 years, said Monday’s closure was emotional.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.