The outlook for global airline industry is improving on the back
of strong performances of the air carriers even amidst the global
economic uncertainties. The global industry is set to benefit from
the ongoing new investments in fleet, efficient cost control
measures, capacity management and consolidation through the
remainder of this year and the next.
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Based on the improving conditions and the efforts taken by the
global carriers, the International Air Transport Association (IATA)
raised the airline profit outlook to $4.1 billion from the previous
expectation of $3.0 billion for this year. However, the profit
outlook is still half the $8.4 billion earned in 2011. This steep
annual decline in the industry's profitability was due to the
intensifying European problems, weak cargo demand, rising fuel
prices and low business confidence.
The global airline industry is expected to generate $636 billion in
revenues and net margin of 0.6% for this year. Passenger demand
would grow by 5.3% for the year, up 70 bps from the previous
expectation owing to improving demand in Western economies. Cargo
however is expected to be in the negative territory, with decline
of 0.4% from 2011 levels.
The strong boost to 2012 profit outlook comes from the
Asian-Pacific region. The carriers in this region such as Cathay
Pacific Airways, Australia's Qantas Airways, Singapore Airlines,
are expected to record a profit of $2.3 billion, up from the
previous forecast of $2.0 billion. Despite the modest slowdown in
Chinese economy, domestic travel demand is growing at about 10%,
and regional and long haul travel demand is trending up better than
North American airlines like
United Continental Holdings Inc.
Delta Air Lines
Southwest Airlines Co
JetBlue Airways Corporation
Alaska Air Group Inc.
US Airways Group Inc.
), are seeing improving growth prospects thanks to tight capacity,
rising travel demand, cost-cutting measures, a number of new and
enhanced ancillary revenues, and fleet rightsizing. These carriers
are expected to generate $1.9 billion in profits this year, up from
the previous expectation of $1.4 billion.
As for the European airlines, the IATA expects this year's loss to
widen to $1.2 billion from $1.1 billion previously forecasted given
ongoing debt crisis, continued weakness in cargo and passenger
businesses, and higher taxes.
As per IATA, profits from the Middle East carriers would grow from
the previous expectation of $0.3 billion to $0.7 billion. Profit
projection for Latin American carriers remains unchanged at $0.4
billion. African airlines would break even in 2012, which is an
improvement from the $0.1 billion loss forecasted previously.
For 2013, IATA projects profits would increase further to $7.5
billion owing to 4.5% and 2.4% rise in traffic and cargo,
respectively, while profit margin would remain thin at 1.1%.
Both United Continental and Delta currently hold a Zacks #5 (Strong
Sell) Rank, while US Airways retains Zacks # 4 (Sell) Rank for the
short term (1-3 months). The other airlines - Southwest, JetBlue
and Alaska and retain a Zacks #3 (Hold) Rank.