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.
According to Bloomberg:
“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]
Business travelers are giving the airline industry a reason to be hopeful … which is strange. Usually, those guys are such a drag. Trust me; I was one of them for a while. Business travelers aren’t much fun at parties or anywhere else. Nonetheless, their presence on planes means more cash in the till for the airline industry, following two years of economic mayhem (and years of management that is what it is).
At a recent meeting of the International Air Transport Association, 700 industry leaders seem to have decided that the biz is headed in the right direction, though they remain cautious. Translation:
Cautious optimism means most airlines expect to make money this year after a couple of years of staggering losses, precipitated by the oil price run-up in 2008 and the global recession in 2009. A profitable airline industry
could also be good news for business travelers as airlines restore the capacity they removed from the network during the last two disastrous years, putting many more seats on sale and offering a wider array of flight options on many routes.
According to IATA, the industry lost $80 billion in the last two years, four times the amount it dropped following the terror attacks of 9/11. Yet, the corner appears to have been turned. Originally, IATA predicted a $5.6 billion loss for the airline industry in 2010, but it has since changed the forecast to a $2.5 billion aggregate profit. This really only amounts to a margin of 0.5 percent (on revenues of $545 billion), which is basically irrelevant in light of the last two years’ losses, but at least it provides a glimmer of hope.
The suits are the reason for this mild form of airline economic bliss:
The rapid turnaround has been led by business travel. During the combined oil/economic crisis, business travel took the greatest hit with passengers traveling in international first and business class down by as much as 25% in May 2009 from the previous year. In contrast, the number of passengers traveling in international economy class was only 10% lower at its bottom point in March 2009 vs. the previous year.
Now that business travelers are back on planes, many problems are creeping toward resolution. Asia and Middle East are leading the recovery, but Europe is expected to lag, with an aggregate loss of $2.8 billion despite a forecasted passenger traffic increase of 2.9 percent.
You may not be crazy about all those cell phone-toting pricks lingering at the gate … but the airlines sure are.
It seems as though flight times aren’t the only things being padded. The original estimate by the International Air Transport Association that the global airline industry wouldn’t be profitable for three years following the financial crisis gave a little bit of elbow room – something you won’t find on the planes themselves – as indicated by the recent announcement of a predicted aggregate profit of at least $2.5 billion. Back in April, IATA forecasted a $2.8 billion loss for the year.
Demand for seats is on the rise, as people just don’t want to stay home any more. Notes, Giovanni Bisignani, director general of IATA, according to a report in USA Today, “The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated.”
In 2009, the global airline industry suffered an $81 billion loss of revenue – a drop of 14.3 percent from 2008. While that did make seats a bit cheaper, it also led to the slashing of routes and what few amenities were left … not to mention all those additional fees. This year, IATA expects revenues to be up $62 billion relative to 2009, but that still leaves a lot of ground for the airlines to make up. While $2.5 billion sounds like a lot of cash, it only amounts to 0.5 percent of total industry revenue, according to Bisignani.
The industry remains “fragile,” he adds, with a slow economic recovery, vulnerability to Icelandic ashes and other disruptions, Europe’s debt crisis and oil prices threatening what gains have been made.
Take advantage of cheap fares while you still can! It looks like the airline industry could find its way back to normal in as little as two years, thanks largely to increase in the United States and Asia, which will offset flagging demand in Europe.
The global recession has been brutal for the airline industry, which sustained 15 percent decline in revenue last year, according to the International Air Transport Association. Nonetheless, the initial belief that it would take three years to recover has been scaled back to two.
Says Giovanni Bisignani, top dog at IATA,
“Instead, probably we are seeing this could happen in two years,” he said at a news conference ahead of IATA’s annual general meeting next week. “The economy is pushing again strongly, especially in areas outside Europe, and the good news is that this industry is recovering faster than expectations.”
Even with an estimate economic impact of $1.8 billion from the “ash cloud” in Iceland, the airline industry is headed in the right direction. So, book your flights now … prices may be heading up soon!
Demand for airline seats fell 3.5% last year, making it the greatest decline the industry has seen, according to the International Air Transport Association. Airlines had a tough time filling 75% of available seats on average flights, IATA reports, and an early recovery, given the difficult conditions of 2009, is unlikely. For the freight sector, the situation was even worse: a 10.1% year-over-year decline, with less than half of all available capacity consumed.
Giovanni Bisignani, IATA’s chief executive, says, “In terms of demand, 2009 goes into the history books as the worst year the industry has ever seen.” He continues, to USA Today, “We have permanently lost two years of growth in passenger markets and three years of growth in the freight business.”
IATA forecasts a $5.6 billion loss for the air transportation industry in 2010. Bisignani observes, “Revenue improvements will be at a much slower pace than the demand growth that we are starting to see.”