Air cargo analysts see a slightly brighter picture

IATA emphasized that, despite the improvements, profitability at these levels is still exceptionally weak
By Patrick Burnson, Executive Editor
September 20, 2011 - LM Editorial

The International Air Transport Association (IATA) announced an upgrading of its industry profit expectations to $6.9 billion (up from $4.0 billion projected in June).

IATA emphasized that, despite the improvements, profitability at these levels is still exceptionally weak (1.2 percent net margin) considering the industry’s total revenues of $594 billion.

In its first look at 2012, IATA is projecting profits to fall to $4.9 billion on revenues of $632 billion for a net margin of just 0.8 percent.

“Airlines are going to make a little more money in 2011 than we thought. That is good news. Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement,” said Tony Tyler, IATA’s Director General and CEO. “But we should keep the improvement in perspective. The $2.9 billion bottom line improvement is equal to about a half a percent of revenue. And the margin is a paltry 1.2 percent. Airlines are competing in a very tough environment. And 2012 will be even more difficult,” said Tyler.

IATA’s forecast is built around global projected GDP growth of 2.5 percent in 2011 falling to 2.4 percent in 2012. Airline financial performance is closely linked to the health of world economies. Whenever GDP growth has slowed below 2.0 percent the airline industry has lost money.

“We will be perilously close to that level at least through 2012. The industry is brittle. Any shock has the potential to put us in the red,” said Tyler.

This comes at a time when available capacity is on the decline, and new buildings are in flux. As noted in LM yesterday, the delivery of the Boeing’s latest offering has been delayed.

This does not trouble Tom Crabtree, who oversees Boeing’s cargo industry forecasting effort, however:

“Projections are highly variable, influenced by short-term factors,” he said.

IATA’s forecast of a $4.9 billion profit is based on partly on metrics indicating that cargo markets that will grow at 4.2 percent (three times the 1.4 percent growth of 2011), but with no growth in yields.
Fuel prices are expected to fall slightly based on a crude oil price of $100 per barrel (less than the $110 price expected for 2011). But due to the effects of fuel hedging delaying the benefits of lower spot prices, the fuel bill will grow to 32 percent of airline costs (up from 30 percent in 2011) with a total bill of $201 billion.



About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Working with research partner, The Economist Intelligence Unit, the IBM Institute for Business Value surveyed 1,023 global procurement executives from 41 countries in North America, Europe and Asia.

U.S. Carloads were down 7.8 percent annually at 259,544, and intermodal volume was off 15.7 percent for the week ending February 21 at 213,617 containers and trailers.

The Department of Transportation’s Bureau of Transportation Logistics (BTS) reported this week that U.S. trade with its North America Free Trade Agreement partners Canada and Mexico in December 2014 was up 5.4 percent annually at $95.8 billion. This marks the 11th straight month of annual increases, according to BTS officials.

While the volume decline was steep, there was numerous reasons behind it, including terminal congestion, protracted contract negotiations between the Pacific Maritime Association and the International Longshore and Warehouse Union, and other supply chain-related issues, according to POLA officials.

Truckload rates for the month of January, which measures truckload linehaul rates paid during the month, saw a 7.9 percent annual hike, and intermodal rates dropped 0.3 percent compared to January 2014, which the report pointed out marks the first annual intermodal pricing decline since December 2013.

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. Contact Patrick Burnson

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA