Airline chiefs believe the worst is over

Ivan Gale

Airline chiefs are upbeat about the next 12 months after coming out of a tough second quarter during which profits were squeezed because of events in the Middle East, North Africa and Japan.

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The latest instalment of the International Air Transport Association's (IATA) business confidence survey shows airline executives believe the worst is behind them in terms of economic shocks and high oil prices, with seven out of 10 respondents reporting an increase in passenger and cargo operations.

"There has been some recovery in the outlook for profitability," the survey said. "Both cargo and passenger demand continued to improve."

But profit margins will remain depressed. Worldwide, airlines are expected to earn US$4 billion (Dh14.69bn) in profits this year, down significantly from the $18bn net profit recorded last year.

Aviation is a critical industry, considered an early indicator for global trade and the world economy. This year, airlines will earn revenues of $600bn, equating to a profit margin of just 0.7 per cent.

"That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance," said Giovanni Bisignani, the chief executive and director general of IATA, based in Geneva.

The cost of fuel is the main cause of the low profit margins. The average oil price for this year is now expected to be $110 per barrel, a 15 per cent increase over the previous forecast of $96.

igale@thenational.ae