Highflying Asia Pacific key driver of global aviation

December 14, Geneva, Switzerland: Asia Pacific is not only enjoying boom in aviation but will drive future growth whilst amassing earnings, the International Air Transport Association (IATA) said today.

Asia, which in 2009 with 662 million passengers beat the intra-region North America as the largest air market of 665 million, is forecast to produce 360 million additional passengers for travel within Asia Pacific by 2014. “Rapidly developing markets are shifting the industry’s centre of gravity to the East,” IATA Director General and CEO Giovanni Bisignani told the organisation’s Global Media Day in Geneva.



He also said that global airlines in 2010 is forecast to make a combined profit of $ 15 billion of which over half or $ 7.7 billion is coming from Asia Pacific carriers. “This is the largest absolute profit for this region,” Bisignani added.

International journalists from global media houses including the Daily Financial Times (Daily FT) gathered in Geneva were also told that four of the world’s biggest airlines by market capitalisation are from Asia Pacific led by Air China ($ 20 billion), SIA ($ 14 billion), Cathay Pacific ($ 12) billion, and China Southern ($ 11 billion), whilst the fourth is Latin America’s LATAM with $ 11 billion, followed by Delta and Lufthansa at $ 10 billion each.

The IATA Chief also said that though global airlines are forecast to post their highest-ever profit of $ 15 billion, it was after posting $ 55 billion in losses between 2001 and 2009.  

On account of higher fuel prices, weak global growth especially in Europe as well as likely over capacity, the airline industry’s profit in 2011 is forecast to dip to $ 9 billion on a revenue of $ 598 billion reflecting a margin of only 1.5%.

He said margins for airlines “are still pathetic” and the industry remains “fragile”.

According to him, industry revenues in 2010 will be $ 565 billion and a profit of $ 15 billion reflects a margin of only 2.7%.

“As a business it clearly shows that we remain a sick industry. We are not even recovering half the cost of capital, which is 7-8%. Even in a profitable period, the industry continues to destroy shareholder value,” IATA Chief explained.

Globally 2.4 billion people are estimated to travel in 2010 and this figure will increase to 3.2 billion by 2014, with 360 million from Asia Pacific out of the 800 million increase.

Today’s announcement of $ 15.1 billion profit estimate is a significant $ 6.2 billion increase in comparison to IATA’s previous forecast released in September.

“Any increase in profits is a welcome step in the right direction. But the fact that we can increase our profit forecast by  70% and still be left with a net margin of just 2.7% shows just how far this industry has to go to achieve a normal level of profitability,” Bisignani pointed out.

Whilst Asia Pacific contributes $ 7.7 billion to combined profit, US will chip in with $ 5.1 billion, and Latin America $ 1.2 billion followed by $ 700 million by Middle East airlines. Europe, which was previously forecast to end the year with a loss, has been upgraded to post a $ 400 million profit based on strong third quarter.

But Bisignani described Europe’s profit as “peanuts” because the European industry is 13 times the size of Africa, but profits are just four times larger than the $ 100 million that Africa’s carriers will make. The same is true for the Middle East airlines.

“They will make $ 700 million this year, almost double the European, but on a quarter of the revenues,” added Bisignani, who after a 10-year stint at IATA will step down as CEO in July next year.

Major drivers for the improved 2010 forecast are passenger traffic growth of 8.9% (compared to 7.7% in previous forecast); strong passenger yield growth of 7.3%, revenue growth to $ 565 billion (up $ 5 billion on previous forecast) and an average annual oil price in line with previously projected $ 79 per barrel. However forecast of oil has been increased to $ 84 per barrel for 2011.

At the Global Media Day, the IATA Chief also highlighted a host of industry achievements, challenges as well as future plans in terms of improving safety, security for passengers, efficiency and sustainability for the aviation business. IATA represents some 230 airlines, including SriLankan Airlines, comprising 93% of scheduled international air traffic.

IATA said profitability for Asia Pacific airlines in 2011 will be slightly under pressure and combined figure is forecast to come down to $ 4.6 billion in 2011. However, it remains the most profitable region of the world for airlines based on strong GDP growth of 6.6% led by China.

The 6.9% demand growth for 2011 is above global average but below the expected capacity expansion of 7.8%. IATA also said the region’s carriers are particularly exposed to fluctuations in cargo markets. “While this accelerated improvements in 2010, the region’s carriers will be disproportionately affected by the expected slowdown in cargo next year,” IATA added.