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The Canadian Press - ONLINE EDITION

Airlines raise 2013 profit outlook based on passenger, cargo demand

By: John Heilprin, The Associated Press

Posted: 03/20/2013 6:10 AM | Comments: 0 | Last Modified: 03/20/2013 9:32 AM

GENEVA - The global airline industry has forecast a modest improvement in global net profits for 2013, crediting a backdrop of rising optimism about the world's economy — particularly in the United States and Europe.

The International Air Transport Association, whose 240 member airlines carry 84 per cent of all passengers and cargo, upgraded its financial outlook Wednesday to expected profits of $10.6 billion this year, mainly based on more passengers and cargo.

IATA said the industry's overall revenue in 2013 is expected to rise to $671 billion from $637 billion last year, while costs will go up to $649 billion from $623 billion.

In December, the Geneva-based global trade group had forecast global net profits of $8.4 billion in 2013, led by a recovery in U.S. airlines mainly from cost cuts and restructuring addressing weak economic growth. That forecast had anticipated that expected overall revenue would rise to $659 billion and costs would go up to $640 billion in 2013.

Asia Pacific airlines are now expected to deliver the biggest contribution to the overall picture, with $4.2 billion in net profits forecast for this year, followed by North American airlines contributing an expected $3.6 billion in net profits.

That is a reversal from December, when the Geneva-based global trade group said it expected North American airlines to do best in 2013 with a combined net profit of $3.4 billion, ahead of the $3.2 billion forecast for Asia Pacific airlines.

Tony Tyler, chief executive of the trade group, told reporters in Geneva that airlines' financial performance is made all the more difficult by high fuel costs, with jet fuel expected to rise to $130 per barrel on average for 2013 — up from the $124 per barrel this year the group said it expected in December.

"What I think is very significant is that airlines are making any money at all in these difficult trading conditions, let alone increasing profit expectations," he said.

Tyler cited rising demand for cargo hauled during the first quarter, and better-than-expected sales of passenger tickets. Also helping airlines' efficiency and profitability, he said, was cost-cutting from consolidation and collaboration on long-haul routes.

Carriers in Europe and Africa are among the worst off, the trade group, but are expected to do a bit better than break even in 2013.

Europe's airlines are expected to post $800 million in net profit, up from $300 million in net profit last year, while Africa's airlines are seen as posting a $200 million net profit in 2013, a turnaround from a $100 million loss in 2012.

Tyler said continued turmoil in the Eurozone poses "a very significant risk" to airlines' profitability.

"The forecast is based on a stable, if weak, Eurozone economy and slow but steady economic growth in the U.S.," he said. But the trade group saw similar improving trends in the Eurozone in early 2011 and in early 2012, he added, "and both times they lost steam as a result of the crisis taking a turn for the worse. It could happen again."

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