BUSINESS

Global airline profits expected to grow in 2013 on higher passenger demand: IATA

01/31/2013 05:14 EST | Updated 04/02/2013 05:12 EDT
Global aviation is on the runway to earn higher profits from a further increase in passengers in 2013 after demand grew by 5.3 per cent last year and planes flew with near record level of seats filled, an industry association said Thursday.

The International Air Transport Association (IATA) also said cargo demand fell for a second consecutive year, dropping 1.5 per cent amid a weak global economy.

Passenger demand was below the 5.9 per cent increase set in 2011, but above the 20-year average of five per cent, while load factors for the year were near record levels of 79.1 per cent.

"We are entering 2013 with some guarded optimism," stated IATA chief executive Tony Tyler, noting a more stable Eurozone and the U.S. avoiding the so-called fiscal cliff.

Fuel prices are expected to continue rising and GDP growth is forecast at just 2.3 per cent, but improved business confidence should help cargo markets to recover lost ground from 2012.

"2013 will not be a banner year for profitability, but we should see some improvement on 2012," he added.

IATA expects global airline profits will increase to US$8.4 billion this year, from an estimated US$6.7 billion in 2012. However, net profit margins are low at around one per cent.

Canadian carriers Air Canada (TSX:AC.B) and WestJet Airlines (TSX:WJA) are expected to enjoy improved profits, say industry analysts.

Chris Murray of PI Financial says Air Canada's pre-tax operating income (EBITDAR) should surge 48 per cent to $240 million in the fourth quarter. He expects the Montreal-based airline will earn $22 million in fiscal 2012, rising to $172 million in 2013 and $198 million in 2014.

"We expect fiscal 2013 should continue to see ongoing improvements in earnings with strong traffic demand and stable fuel prices," he wrote in a report.

Calgary-based WestJet is expected to see its earnings increase to 43 cents per share in the fourth quarter and $1.75 per share for the year, up from 26 cents and $1.06 per share respectively, said Jacques Kavafian of Toll Cross Securities.

"The big story at WestJet will be 2013 and 2014 with the introduction of premium economy and fare bundling, both initiatives, we expect to make significant earnings contribution," he wrote.

IATA said global demand for international flights grew six per cent in 2012 while domestic travel increased four per cent, both driven mainly by emerging markets.

The Middle East led with 15.4 per cent growth in international passenger traffic, followed by Latin America (8.4 per cent) and Africa (7.5 per cent).

North American carriers reported the slowest international passenger growth of any region at 1.3 per cent, down from 4.1 per cent in 2011. Growth in domestic air travel was strongest in China (9.5 per cent) and Brazil (8.6 per cent), while U.S. traffic expanded 0.8 per cent.

India was weakest, falling 2.1 per cent from 2011.

Airline restructuring, consolidations and a 0.3 per cent decrease in capacity helped North America to deliver the highest load factor of 82 per cent, contributing to an estimated US$2.4 billion profit.

IATA said the slowdown in domestic U.S. traffic reflected subdued economic growth in a market that accounts for about half of all domestic travel.

Tyler said the air cargo industry suffered a "one-two punch" last year.

"World trade declined sharply. And the goods that were traded shifted towards bulk commodities more suited for sea shipping," he said.

The bright spot was development of trade between Asia and Africa, which supported strong growth for airlines based in the Middle East and Africa.

In December, total passenger demand grew 4.2 per cent on a 2.7 increase in capacity. International demand increased by five per cent while domestic demand was up 2.9 per cent.