In a first look at 2013, the association sees global profits rising modestly to $7.5bn, though this is a net margin of just 1.1%.
"The European sovereign debt crisis lingers on. China continues to moderate its growth. And the impact of recent quantitative easing in Japan and the US will take time to yield growth. While some of these risks have diminished slightly over recent months, they continue to take their toll on business confidence. The outlook improvement is due to airlines performing better in a difficult environment," said Tony Tyler, IATA's Director General and CEO.
Improved airline performance was evident in second quarter results, which showed operating profits close to those of the previous year, following a tough first quarter.
The evidence is showing that consolidation is producing positive results. Asset utilization in the passenger segment is high across many markets. In past cycles passenger load factors and aircraft utilization would have fallen by this stage, in the face of slowing demand and increasing aircraft deliveries.
In the current cycle airlines have kept both load factors and aircraft utilization high. This has allowed yields to improve and spread fixed costs more widely. However, asset utilization has fallen in the weaker cargo market, adversely affecting Asia-Pacific airlines in particular, where this business makes up a larger share of total revenues.
"Even six years ago, generating a profit with oil at $110/barrel (Brent) would have been unthinkable. The industry has re-shaped itself to cope by investing in new fleets, adopting more efficient processes, carefully managing capacity and consolidating. But despite these efforts, the industry's profitability still balances on a knife-edge, with profit margins that do not cover the cost of capital," said Tyler.
"Aviation has an important role to play as the global economy struggles. Growth is the only way forward and a healthy aviation industry can stimulate that—linking stagnating developed economies to robust emerging markets. Aviation connectivity spurs growth at both ends. That is why it is important for governments to ensure aviation's ability to be a catalyst for growth is not constrained. Unfortunately, in many parts of the world, it is an uphill struggle with high taxes, onerous regulation and insufficient infrastructure. All of this stunts industry growth to the detriment of the world economy," said Tyler.
Globally, aviation supports some 57 million jobs and $2.2 trillion in economic activity.
2012 Outlook Drivers
GDP: GDP forecasts have remained unchanged at 2.1% growth for 2012.
Oil Prices: Over the last three months, oil prices have been volatile, declining to below $90/barrel (Brent) in June and then peaking around $115 in late August. Overall, the forecast remains for an average oil price of $110/barrel for the year. Jet fuel prices, however, have increased by $1.20/barrel (in the June forecast) to $127.70. This will add $1bn to the industry fuel bill, bringing an anticipated $208bn cost for the year.
Passenger: The passenger market has performed well in the face of weak business confidence in Western economies. Demand is expected to grow by 5.3% over the course of 2012, which is 0.5 percentage points better than was foreseen in June. Over the first eight months of 2012 passenger demand has increased by 1.4 percentage points ahead of capacity. These tighter supply and demand conditions led to strong load factors which averaged at 79.3% for January to August 2012. This set the stage for a stronger yield growth which is expected to be 2.5% (one percentage point ahead of what was anticipated in June).
Cargo: On the cargo side of the business, demand has fallen into negative territory from the 0.3% expansion anticipated in June. Cargo is expected to finish the year with a 0.4% contraction on 2011 levels. For the first eight months of the year, cargo capacity grew by 3.0 percentage points ahead of demand. With about half of air freight traveling in the bellies of passenger aircraft, matching cargo capacity to demand is challenging.
The weaker supply/demand environment has led to a more pessimistic outlook for cargo yields which are expected to average at 2.0% below 2011 levels (the previous forecast was for flat growth).
Middle East carriers are expected to post a $0.7bn profit, up $0.3bn from the previous forecast. Although global cargo markets have been basically flat since the end of last year, the region's carriers have captured the majority of what growth there has been. Over the first eight months of the year, the region's cargo capacity has expanded by 13% while demand has increased by 14%.
The region has also shown the strongest passenger traffic growth with a 17.1% increase in demand outstripping a 13.2% increase in capacity. The region's carriers continue to expand their long-haul market share with connections through their expanding hubs.
To illustrate the region's growth, the share of international passenger traffic held by its carriers has expanded from 4.8% in 2002 to 11.5% in August 2012.