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            september 19, 2019

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IATA reduced its forecast for airline profits


The International Air Transport Association (IATA) has reduced its forecast for airline profits in 2012 from US$4.9 billion to $3.5 billion based on the deteriorating sovereign debt crisis in the Eurozone.
"The biggest risk is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion," said IATA director general Tony Tyler, formerly the CEO of Hong Kong's Cathay Pacific Airways.
"This admittedly worst-case but by no means an unimaginable scenario and should serve as a wake-up call to governments around the world," Mr Tyler said.
For this year profitability remains weak but unchanged at $6.9 billion for a net margin of 1.2 per cent.
At the global level, passenger demand in 2011 is expected to have expanded by 6.1 per cent, which is stronger than the 5.9 per cent forecast in September.
This slightly stronger-than-expected passenger performance is offsetting the worse-than-expected cargo performance and somewhat higher-than-anticipated oil prices, said the IATA statement.
At $112 per barrel, the industry's 2011 fuel bill is expected to be $178 billion, up $2 billion from previous expectations. A downward trend in cargo since mid-year means that cargo likely will finish the year with a 0.5 per cent contraction in volumes and flat yields.
European carriers are worst off by far. Higher passenger taxes and weak home market economies have limited profitability in Europe, said the statement. The region's carriers are forecast to generate a collective profit of $1 billion this year, down from the previously forecast $1.4 billion, and an EBIT margin of 1.2 per cent.
North American carriers are better off with yield and load factor improvements from tight capacity management, which improved profitability to $2 billion, up from the previously forecast $1.5 billion.
Asia-Pacific carriers also saw stronger though varied trading conditions, said IATA. Japan's domestic market still has not fully recovered from the March earthquake and tsunami, and load factors remain under pressure. By contrast airlines have improved load factors and profitability on China's expanding domestic market. IATA said it has upgraded its forecast for the region by $800 million to a $3.3 billion profit, the largest profit among the regions.
Mideast carriers are expected to see profits of $400 million (down from the previously forecast $800 million) as high fuel costs squeezed margins on the more price sensitive long-haul traffic connecting over Middle Eastern hubs.
Latin American profits will see a downgrade to $200 million (from the previously forecast $600 million). Performance has been mixed across the region with much of the downgrade due to the impact of intense competition and falling load factors on Brazil's domestic market. Meanwhile, African carriers are still expected to break-even.
Looking ahead to 2012, passenger demand is expected to grow by four per cent, down from previously forecast 4.6 per cent compared to this year, while cargo is expected to show flat growth (down from the previously forecast 4.2 per cent expansion).

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