The purple patches come from the Asia-Pacific and the Middle East regions while growth in North America and Europe continue to lag. Consequently, the IATA has revised its projections of net profits for 2011, up from its earlier forecast of $5.3 billion to $8.6 billion. However, the net margins remain weak at 2.7 per cent for 2010 and falling to 1.5 per cent in 2011.

In 2011, the recov ery phase of the airline industry is expected to pause. Increase in average oil price from last year and slower global GDP rate are among the industry dampeners. Disturbances in Libya and Egypt have already pushed oil prices to over $100 (Rs. 450 crore) a barrel.

The International Air Transport Association (IATA) forecast a downward trend of profits of $8.6 billion (Rs. 38,700 crore) in 2011 from its earlier forecast of $9.1 billion (Rs. 40,900 crore). The Middle East disturbances is said to increase the industry fuel bill by $10 billion (Rs. 45,000 crore) to a total of $166 billion (Rs. 7,47,200 crore). Compared to the levels in 2010, oil prices are now expected to be 20 per cent higher in 2011 and that fuel would represent 29 per cent of total operating costs (up from 26 per cent in 2010).

The Director General and CEO of IATA, Giovanni Bisignani forecasts that the “industry would face tougher conditions than what we are experiencing today”.

The purple patches come from the Asia-Pacific and the Middle East regions while growth in North America and Europe continue to lag. Consequently, the IATA has revised its projections of net profits for 2011, up from its earlier forecast of $5.3 billion (Rs. 24,300 crore) to $9.1 billion (Rs. 41,700 crore).

“Despite higher profit projections, we still see the recovery pausing next year after a strong post-recession rebound. And the two-speed nature of the recovery is unchanged with European airlines continuing to underperform in other regions. The margins remain pathetic. With a 2.7 per cent net margin in 2010 shrinking to 1.5 per cent in 2011, we are nowhere near covering our cost of capital. The industry is fragile and balancing on a knife edge. Any shock could stunt the recovery, as we are seeing the results of new or increased taxation on airlines and travellers in Europe,” said Bisignani.

IATA analysed that the operating environment will become more difficult because of increased fuel cost; slower GDP growth and taxation, particularly in Europe.

Asia-Pacific shows the way

IATA pointed out that all regions would be following the global trend of reduced profitability in 2011 compared to 2010.

• North American carriers will see a 2010 profit of $5.1 billion (Rs. 23,400 crore) decrease to $3.2 billion (Rs. 14,600 crore) in 2011. The weak US economic recovery will limit demand increases to 3.7 per cent.
• Asia-Pacific carriers will post decreased profits of $4.6 billion (Rs. 21,100 crore) in 2011 from $7.7 billion (Rs. 35,300 crore) in 2010. It remains the most profitable region of the world for airlines based on strong GDP growth (outside of Japan) of 6.6 per cent, led by China. The 6.9 per cent demand growth for 2011 is above the global average, but below the expected capacity expansion of 7.8 per cent.
• Middle East carriers are expected to see profits shrink from $700 million (Rs. 3,215 crore) in 2010 to $400 million (Rs. 1,837 crore) in 2011. But the pace of demand growth will halve from 21.5 per cent in 2010 to 10.5 per cent in 2011.
• European carriers will be the industry laggard among the major regions with a $400 million (Rs. 1,800 crore) profit in 2010 shrinking to $100 million (Rs. 450 crore) in 2011.
• Latin American carriers will see their $1.2 billion (Rs. 5,500 crore) profit in 2010 cut to $700 million (Rs. 3,215 crore) in 2011. Consolidation within the region and a robust regional economy, led by Brazil, will continue to support solid and profitable growth among the region’s leading carriers.
• African carriers will see 2010 profits of $100 million (Rs. 450 crore) move to break-even in 2011. As with other regions, a capacity expansion of 6.4 per cent in 2011 will outstrip demand growth of 5.5 per cent.