Asia-Pacific is key to air cargo recovery

While the International Air Transport Association (IATA) further downgraded its 2011 airline industry profit forecast to $4 billion, Asia-Pacific carriers are expected to earn $2.1 billion—the most profitable of all regions.

But even here, there were some warnings issued by analysts, who note that it is dramatically down from the $10 billion profit that the region achieved in 2010.

Airlines in this region are more exposed than others to cargo markets and fuel price fluctuations, IATA said.

Asia-Pacific airlines carry 40 percent of all air freight volumes, while low labor costs and relatively low hedging means fuel accounts for a bigger proportion of total costs. In addition, the Japanese earthquake and tsunami are expected to dent the region’s prospects for the remainder of the year.

However, this will be more than offset by robust growth in both China and India. The continued dynamism of these economies means that Asia-Pacific is the only region where demand increases (6.4 percent) are expected to outpace capacity growth (5.9 percent).

The key risk in this region to this outlook is a weakening of global economic growth. High energy prices will certainly have a slowing impact on economic expansion, economists agree.

IATA said the impact will be mitigated by two factors. First, while high oil prices previously triggered recessions, today’s economies (which generate a unit of GDP using just half the energy required in the mid-1970s) are less sensitive. Second, the corporate sector is cash-rich, business confidence is high, and world trade continues to expand at around 9 percent annually.

The International Monetary Fund and others have raised global growth projections, which would indicate a recovery in demand growth to the historical 5.6 percent level for the second half of 2011. IATA’s forecast for continued, albeit lower, airline profits despite $110 a barrel oil prices, is dependant on a strong economy to generate sufficient revenues to partially offset higher fuel costs.

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