IATA fears Cyprus crisis could impact airlines

Expects airline profits and margins to improve in 2013

International Air Transport Association (IATA) expects a boost in airline profits in 2013 based on stronger revenue but has warned that impact of  the crisis in Cyprus can pose a risk to revival of the aviation sector.

On Wednesday IATA announced a modest improvement in its outlook for the 2013 financial performance of the global airline industry primarily based on stronger revenues.

IATA now expects airlines to produce a combined net post-tax profit margin of 1.6% (up from the previously forecast 1.3%) with a net post-tax profit of $10.6 billion (up from the previously projected $8.4 billion).
 

“Industry profits are taking a small step in the right direction. Against a backdrop of improved optimism for global economic prospects passenger demand has been strong and cargo markets are starting to grow again. The economic optimism is also pushing fuel prices higher. We are seeing a $12 billion improvement in revenue, and a $9-10 billion increase in costs—most of which is related to fuel,” said Tony Tyler, IATA’s Director General and CEO.

“European Central Bank commitments with respect to the Eurozone crisis and the slow economic recovery in the US should be pointing us towards a durable, if weak, upswing. But we have had two false starts already. Improving conditions in early 2011 and 2012 disintegrated as the Eurozone crisis intensified. And it could happen again. The impact of the unfolding situation in Cyprus is a risk factor that cannot be ignored,”  Tyler said.

According to IATA, average jet fuel costs is expected to be around  $130/barrel for the year (up from $124.3/barrel projected in December). Overall, fuel will account for 33% of airline costs, unchanged from 2012.

It expects Asia Pacific airlines to post $4.2 billion net profit expected in 2013 (up from $3.2 billion previously projected and from the $3.9 billion reported for 2012).

Asian carriers comprise about 40% of the air cargo market and will be the biggest beneficiaries of the expected upturn in cargo demand. Carriers in the region are expected to see average demand growth of 4.9%, slightly outpaced by a 5.0% capacity expansion.