Asia-Pacific powers upturn in airline profits

Global aviation traffic is back to pre-recession levels, and the International Air Transport Association (IATA) on Monday revised its forecast for 2010 to a global profit of $2.5 billion from a loss of $2.8 billion in March.

The industry’s first profit since 2007 comes after a decade in which airlines have lost a cumulative $47 billion.

Asia-Pacific is powering the upturn with $2.2 billion in profit. This is more than double the previously forecast $900 million in March, and a major reversal from the $2.7 billion loss in 2009, said Giovanni Bisignani, director general and chief executive officer, IATA in his speech during the body’s annual general meeting.

Asia-Pacific carriers continue to benefit from strong regional growth. Against a global GDP growth expectation of 2.9 percent, the Asian economy (excluding Japan) is expected to grow by 7 percent this year. China will outpace that with an expected 9.9 percent GDP expansion.

Bisignani stressed the importance of Asia-Pacific region saying, “We developed this region into our largest market, [accounting for] one-third of all aviation.”

Bisignani said airlines are benefiting from a strong traffic rebound that is pushing the industry into the black.

Industry revenues are forecast to reach $545 billion in 2010,

higher than 2009′s $483 billion, but below the $564 billion achieved in 2008. “We thought that it would take at least three years to recover the $81 billion (14.3 percent) drop in revenues in 2009. But the $62 billion topline improvement this year puts us about 75 percent on the way to pre-crisis levels,” Bisignani said.

North American carriers will move into the black at $1.9 billion. Latin American airlines will return $900 million, the only region with two consecutive profitable years. Middle Eastern and African carriers will each deliver profits of $100 million.

Europe, with its weak economy, will be the only region in the red, with a $2.8 billion loss.

Bisignani expressed some concerns over excess capacity. Some 1,340 aircraft will be delivered this year and only 500 are for replacement. Amongst the many concerns he voiced was the volatility in oil prices.

From $40 per barrel in 2009, crude almost hit $90 per barrel earlier this year, and has hovered above $70 a barrel since May. “Hedging is critical for our business, but speculators are making huge profits. governments must protect the economy from irresponsible profiteering,” Bisignani said.

Another concern Bisignani highlighted was that of labour � “We cannot pay salary increases with our $47 billion in losses. Pilots and crew must come down to earth and strikes at this time are shortsighted nonsense. Labour needs to stop picketing and cooperate,” he said.

Bisignani stressed on the importance of providing a level playing field, where airlines can build efficiencies across borders, while ensuring safety and security.

While outlining his vision for 2050 of achieving zero accidents, he said that by 2050, “we will have 16 billion passengers and 400 million tonnes of cargo”.

“In just a couple of decades, the demographics of our customer base will change dramatically,” he said. “The middle class will nearly triple from 1.3 to 3.5 billion people. India and China will account for a quarter of these potential travellers. At about the same time, the GDP of today’s BRICs will equal that of the G7, shifting cargo flows dramatically.”

“In just over a decade, I can see $100 billion in industry profits on revenues of $1 trillion. As we move towards 2050, this 10 percent margin will become even more robust. This is not just a crazy dream. Before the recession, at least a dozen IATA members already had 10 percent margins,” he added.

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