All those extra fees may have helped the airlines out last quarter but don’t expect these “good times” to last forever. According to the International Air Transport Association, airline profits are expected to peak at $8.9 billion this year and will be followed by a decline. Pressure on demand and investments in new planes will be among the reasons for this turn. Next year, IATA forecasts an aggregate profit of $5.3 billion.
“The economic environment is still extremely risky and uncertain going forward,” Brian Pearce, IATA’s chief economist, said today. “In Europe, we’ve seen the markets are getting very worried about government debt in some countries. And we don’t really know what impact the austerity budgets will have.”
With 1,400 new aircraft to be delivered next year, carrier capacity is expected to grow by 6 percent, staying ahead of a 5 percent increase in “demand and depressing load factors, a measure of seat occupancy, which will in turn will keep yields or prices ‘flat,'” according to IATA.In 2010, seating increased 7 percent, with traffic up 11 percent. Disciplined operations helped lead to the filling of 78 percent of seats through the end of July. With the increase in capacity relative to demand next year, the 2010 successes are unlikely to be revisited.
Even though 2010 was a relatively strong year for the airline sector, the perceived successes come in part from a depressed baseline:
Global sales will climb to $560 billion in 2010, $15 billion more than previously forecast but less than the $564 billion achieved in 2008, IATA said. The forecast profit is also $4 billion lower than the figure for the pre-slump year of 2007.
So, what does all this mean for you?
Airline woes tend to become passenger woes pretty quickly, as anyone who’s paid to check a bag has learned the hard way. They’ll be looking for ways to protect their margins, so you should probably keep an eye on your wallet.
[photo by UggBoy via Flickr]