Global airlines have sharply hiked their forecast for industry profits this year as recession fades—but new capacity could cut profits as soon as 2011, the International Air Transport Association said.
The split view came in a revised outlook released by the Geneva-based trade body which represents about 80 percent of world carriers. Only six months ago it was predicting more losses for an industry shaking off its worst ever downturn.
Traffic, particularly in the economic bellwether sector of air cargo shipments in Asia, has risen faster than expected and airlines have been tough about limiting the number of seats put on sale to protect their margins during the recession.
But concerns have arisen about the discipline in holding down capacity as airlines get new planes delivered in 2011 and seek to beat competitors to tap the precious upturn in demand.
IATA said it expected the industry to post a combined net profit of $8.9 billion, more than three times the previous forecast of $2.5 billion made in June. That also compares to an estimate of nearly $10 billion in losses in 2009.
“It is a significant improvement, much stronger than forecast,” IATA chief executive Giovanni Bisignani told reporters in Singapore.
“But I would say it is not time for big celebration, let’s just do a nice party.”
IATA warned that increasing capacity due to new aircraft deliveries in 2011 will lead to slower growth for the industry and put pressure on yields and load factors, resulting in a lower net profit of $5.3 billion globally next year.
“The cyclical upturn in traffic and yields has been faster than expected, reflecting the post-recession rebound and tight capacity. However, the durability of this upturn is in increasing in doubt in North America and Europe,” IATA said in a statement.
IATA said Asia-Pacific airlines were the biggest beneficiaries of a sharp rebound in cargo revenues and revised up the profit forecast in this region to $5.2 billion from $2.2 billion.
In contrast, IATA said European airlines are expected to remain in the red although the agency lowered its loss forecast to $1.3 billion from $2.8 billion in the previous June tally.
Analysts said the figures reflected concerns over double-dip recession in the United States and a groggy recovery in Europe, but noted IATA numbers do not include booming low-cost carriers easyJet and Ryanair which do not belong to IATA.
European travel shares <.SXTP> rose 0.1 percent on Tuesday.
Asia Leads Recovery
Airbus and Boeing have seen a recovery in plane orders this year mainly from Asia and the Middle East, which also dominated the last up cycle. Banks and lessors betting on those trends continuing have also been ordering in bulk.
The global economic recession had sent the airline industry into its worst downturn in history, forcing airlines to cut capacity and lay off staff and sent Japan Airlines Asia’s biggest airline by revenue, into bankruptcy protection.
A number of major airlines in Asia, including Singapore Airlines and Cathay Pacific , have however expressed optimism on the outlook of the sector this year. (Reuters)