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Airlines to make $7bn this year but turbulence ahead

AVIATION

Published 21/09/2011 | 05:00

The world's airlines are likely to make $6.9bn (€5bn) in profits this year -- nearly 75pc more than the figure previously predicted by the International Air Transport Association (IATA).

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But the agency warned that economic headwinds are going to restrict earnings next year, with combined profits likely to fall to $4.9bn on revenues of $632bn. The IATA said it based next year's projected performance on an assumed global economic growth rate of 2.4pc, compared to 2.5pc in 2011.

IATA director general Tony Tyler said that while the re-assessment for 2011 profitability was welcome, the industry needed to retain perspective given the current environment.

"Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement," he said yesterday.

"But we should keep the improvement in perspective," added Mr Tyler.

"The $2.9bn bottom line improvement is equal to about a half a percent of revenue. And the margin is a paltry 1.2pc. Airlines are competing in a very tough environment. And 2012 will be even more difficult."

The projections come as the Government is engaged in a process of trying to accurately value its 25.1pc stake in Aer Lingus with a view to selling it over the next year or two.

Forecast

The IATA has predicted that European carriers will be the worst hit of any airlines around the world next year, and has forecast that they'll generate combined profits of just $300m in 2012 -- over $1bn less than this year.

Lufthansa yesterday cut its profit forecast for this year in a surprise move that sent its shares over 7pc lower. Profitability at airlines is closely linked to GDP performance.

The IATA said that whenever GDP growth has slowed below 2pc, the airline industry has lost money.

"We will be perilously close to that level at least through 2012," warned Mr Tyler.

"The industry is brittle. Any shock has the potential to put us in the red."

The agency said that European carriers were set to benefit most from increased airline traffic demand this year, with a weaker euro encouraging inbound tourism and providing a boost to exports. Europe's airlines are expected to report profits of $1.4bn in 2011 compared to the IATA's previous forecast of $500m.

The overall 2012 profitability figure assumes that passenger markets across the globe will grow 4.6pc compared to the 5.9pc expected this year. However, yield growth is expected to be 1.7pc -- nearly half the figure the IATA expects in 2011.

"With business confidence declining, it is difficult to see any potential for significant profitable growth," Mr Tyler said. Airlines faced a "long, slow struggle".

Irish Independent

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