Editor's Note

The fourth-quarter earning reports announced by airlines in North America showed results that were largely predictable — many carriers reported profits amid slashed capacities and an (albeit slowly) improving economy.

However, the year ahead has a more tempered outlook in terms of profits.

The International Air Transport Association recently released its industry estimate for carriers around the world. The association estimated profits of about $15.1 billion in 2010 and a profit of $9.1 billion in 2011.

While the estimates state a profit for most carriers, the association was not optimistic in its outlook, describing profit margins as “pathetic.” “With a 2.7% net margin in 2010 shrinking to 1.5% in 2011, we are nowhere near covering our cost of capital,” stated Giovanni Bisignani, IATA’s director general and CEO, in the association’s release. “The industry is fragile and balancing on a knife edge. Any shock could stunt the recovery, as we are seeing with the results of new or increased taxation on airlines and travelers in Europe.”

Regional Growth/Areas of Challenge
Some regions are expected to fare better than others. Asia-Pacific has continued to stand out as a region of growth, with IATA forecasting a profit of $7.7 billion in 2010 and $4.6 billion in 2011. However, it will remain at the mercy of the economy and cargo volumes. “The region’s carriers are particularly exposed to fluctuations in cargo markets. While this accelerated improvements in 2010, the region’s carriers will also be disproportionately affected by the expected slowdown in cargo next year,” according to the association.
Carriers in North America have been forecasted to earn $5.1 billion in 2010 and $3.2 billion in 2011, with a 3.7 percent increase in demand and a capacity increase of 4.6 percent.

The outlook for European carriers is much bleaker with a projected profit of $400 million in 2010 and $100 million in 2011.

So what does that mean for the industry? As we all know, it comes down to the economy. It likely won’t be the blockbuster year that we would all like to see. However, if passenger and cargo volumes continue to improve under the leaner operating models of the airlines (and fuel prices remain manageable), the profits will continue to trend in the black. Here’s to hoping for the best … with a healthy dose of caution.

As always, thank you for reading!