Regional air cargo markets in stark contrast
December 07, 2011
Even if government intervention averts a banking crisis it is unlikely that Europe will avoid a brief recession, maintain air cargo analysts.
According to the International Air Transport Association (IATA) business and consumer confidence has already fallen too far. Global GDP growth forecasts for 2012 have been revised downwards to 2.1 percent.
Historically the airline industry has seen profit turn into loss whenever global GDP growth falls below 2 percent. This is driving the downgrade in the 2012 outlook.
Key variables driving this downgrade:
Demand: Cargo demand is expected to show flat growth (down from the previously forecast 4.2 percent expansion).
Yields: Cargo yields are expected to remain flat in 2012.
Fuel: Fuel costs are relatively unchanged from the previous forecast at $198 billion. That is based on oil at $99 per barrel (against a previous forecast of $100 per barrel).
Revenues and Costs: Industry revenues are expected to grow by 3.7 percent to $618 billion. This will be outstripped by cost increases of 4.5 percent to $609 billion.
All regions are expected to show profit deterioration from 2011. However, the regional differences in 2012 are stark:
*European carriers are expected to fall into losses of $600 million, hit by the weakness of their home market economies and further increases in passenger taxes.
*North American carriers are expected to generate profits of $1.7 billion, maintaining the strongest EBIT margin of 2.4 percent, as limited capacity growth is providing some protection against the downward pressure on profits.
*Asia-Pacific carriers are expected to deliver the largest absolute profit at $2.1 billion. This is weaker than 2011’s performance but the deterioration is limited by high load factors on markets such as China, where the increases in demand are structural and to some extent shielded from the cycle.
*Middle East carriers are expected to post a $300 million profit, less than half the previously forecast $700 million profit, as long-haul market conditions deteriorate, in particular those linked to the weak European economies.
*Latin American carriers will see profits decline to $100 million—a $400 million negative swing from the previous forecast, partly a carry-over from the recent weakness of profitability in the large Brazil market.
*African carriers will fall into losses of $100 million, unchanged from the previous forecast. Economies and air transport markets continue to grow in the region, but load factors are not expected to be strong enough to offset the impact of weaker yields on profitability.
Tony Tyler, IATA’s director general and CEO, paints a pretty bleak scenario.
“Even our best case scenario for 2012 is for a net margin of just 0.6 percent on revenues of $618 billion. But the industry is really moving at two speeds with highly taxed European carriers headed into the red,” Tyler said.
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