IATA forecasts higher results for airlines in 2010

Global airlines are expected to record improved results in 2010 following strong passenger demand in the first months of this year, the International Air Transport Association (IATA) said.

IATA, which represents 93 per cent of the industry, has halved its loss forecast for 2010 to $2.8 billion, compared to the $5.6 billion announced last year following the weak economy that saw travel record low demand.

The body said the improvement has been attributed to a stronger recovery demand witnessed towards the end of 2009 and the first months of this year.

Passenger demand is expected to grow by 5.6 per cent this year compared to the forecast of 4.5 per cent given in December 2009.

Last year, passenger demand fell by 2.9 per cent.

Cargo is expected to grow by 12 per cent compared to the drop of 11.1 percent seen last year.

Revenues are expected to rise to $522 billion in 2010, a nine per cent improvement on 2009, but still seven per cent below the 2008 peak.

“Demand is improving. We can be optimistic, but with due caution as important risks remain,” IATA’s director general and chief executive, Mr Giovanni Bisignani, said.

He, however, warned that the rising fuel oil prices sill remained a “wild card” that could see fuel representing at least 26 per cent of airlines operating costs from 24 per cent in 2009.

IATA has raised its expected average oil prices to $79 per barrel from the previous forecast of $75 a move that is expected to cost the industry a fuel bill of $132 billion.

The cost of fuel has been a major headache for the aviation sector and was the main driving force to Kenya Airways announcing Sh5.66 billion losses in last year compared to a pretax profit of Sh6.5 billion the previous year.

The loss was attributed to new accounting rules that saw the airline book a Sh7.5 billion loss on unrealised hedging position in its income statement.

African airlines

However, in its six months ending September 2009 the airline managed to make a saving of Sh5.7 billion on its fuel leading to pre-tax profits of Sh1.23 billion, a 17 per cent increase compared to the prior period.

The current growth has mainly been attributed to Asia driven by China and Latin America, which are expected to make profits of $900 million and $800 million respectively.

African airlines are expected to record improved demand by 7.4 per cent, however, this is not expected to return the regional carriers into profitability though losses are expected to be halved to $100 million compared to the previous forecast of $500 million.

Airlines in the region are faced with strong competition for market share, IATA said.

Europe is expected to report the largest loss of $2.2 billion followed by North America with $1.8 billion mainly due to slow economic recovery and “faltering consumer confidence.”

The low yields in long-haul markets that connect over Middle East hubs, especially Dubai and Qatar that have positioned themselves as major transit points, is expected to impact profitability in the region negatively with a loss of $400 million expected despite strong demand.

Both passenger and cargo yields are expected to show an improvement this year, despite premium yields, from premium travel, expected to remain low.