IATA forecasts cut in airlines' profitability

The main aviation trade body has forecast a cut in airline profits in 2014 because of concerns about China's deteriorating economic performance and a slowdown in world trade.The International Air Transport Association (IATA) forecast that airlines would record a collective net earnings of $18bn this year, down from its March estimate of 18.7bn, citing concerns about China's economy and geopolitical risks such as the Ukraine crisis.A slowdown in exports from developed and developing countries has also weighed on IATA's figures and, although the $18bn earnings forecast would represent an improvement on 2013, the trade body complained that airlines were still not achieving adequate returns on invested capital because of punitive government taxes and regulation.Tony Tyler, IATA director-general, told the organisation's annual meeting in Doha that it was 'great' to be able to celebrate the 100th anniversary of commercial aviation with the industry 'in the black'.'But there are strong headwinds with rising infrastructure costs, inefficiencies in air traffic management, a heavy tax burden and costly regulation,' he added.Airlines in North America are reporting the strongest financial performance, reflecting how the carriers are benefitting from a period of consolidation that culminated in the merger between American Airlines and US Airways.US and Canadian airlines are forecast to record collective net profits of $9.2bn this year, resulting in a margin of 4.3 per cent.By contrast, European airlines are estimated to report profits of $2.8bn this year, or a margin of just 1.3 per cent, which IATA blamed on high infrastructure and regulatory costs.The trade body accused EU member states of blocking delivery on long-promised improvements in the use of European air space that could provide carriers with significant fuel savings.Inefficient use of airspace is also becoming an issue in the Middle East, where fast-expanding carriers led by Emirates Airline have their bases. The region's carriers are expected to report net profits of $1.6bn this year, generating a margin of 2.6 per cent.In Asia, airlines that play a prominent role in shifting goods from east to west are poised to benefit from a moderate uptick in the air cargo market, which has been in the doldrums since 2010. Asian airlines are forecast to record net profits of $3.2bn this year, resulting in a margin of 1.6 per cent.IATA highlighted how airlines had secured a steady improvement in their profitability over the past few years through consolidation and cost-cutting.But the trade body said an estimated return on invested capital of 5.4 per cent for the industry in 2014 would still be two percentage points below its cost of capital.'There is a mismatch between the value that the industry contributes to economies and the rewards that generates for those who risk their capital to finance the industry,' said Mr Tyler.
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