October 2011 GSW News

Business Buzz The International Air Transport Association reiterated the aviation industry’s commitment to reducing CO2 emissions and urged the European Union to abandon its plans to include aviation in the EU’s Emissions Trading Scheme to begin...


Business Buzz

The International Air Transport Association reiterated the aviation industry’s commitment to reducing CO2 emissions and urged the European Union to abandon its plans to include aviation in the EU’s Emissions Trading Scheme to begin next year. IATA invited governments to join industry as committed partners in a global approach to reducing aviation’s carbon emissions that could also include a global ETS or other compensation measures. In related news, The International Air Cargo Association also wants to suspend ETS. TIACA says ETS is inefficient and will drive up air freight costs. TIACA is instead trying to get the EU to go after a carbon emissions agreement with the International Civil Aviation Organization.

At last count, 27 aviation industry groups signed letters to both U.S. House of Representatives Speaker John Boehner (R-OH) and U.S. Senate Majority Leader Harry Reid (D-NV) opposing the $100-per-flight user fee as part of the Obama administration's deficit reduction proposal. The letter encourages Congress to "focus on increasing U.S. international competitiveness rather than viewing the industry as a national piggybank," and states, "Furthermore, we need to increase jobs while ensuring that tax and infrastructure policy are strengthening U.S. aviation and furthering the safety and modernization of the aviation system."

IATA Raises 2011 Profit Projection, But Expects A Tougher 2012

The International Air Transport Association announced an upgrading of its industry profit expectations to $6.9 billion up from $4 billion projected in June. IATA emphasized, however, that despite the improvements, profitability at these levels is still exceptionally weak.

“Airlines are going to make a little more money in 2011 than we thought,” said Tony Tyler, IATA’s Director General and CEO. “That is good news. Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement. But we should keep the improvement in perspective. The $2.9 billion bottom line improvement is equal to about a half a percent of revenue. And the margin is a paltry 1.2 percent. Airlines are competing in a very tough environment. And 2012 will be even more difficult.”

In its first look at 2012, IATA is projecting profits to fall to $4.9 billion on revenues of $632 billion for a net margin of just 0.8 percent.

In other 2011 news, IATA included the following forecasts:

Passenger: Passenger demand has been stronger than anticipated given the gloomy economic outlook. The forecast for the year stands at 5.9 percent growth.

Freight: Air freight has stagnated since the start of the year. IATA slashed its full-year volume growth projection to 1.4 percent from 5.5 percent.

Fuel: Oil prices have remained consistent with the previous forecast of $110 a barrel. This is 39 percent higher than the average 2010 price. A total fuel bill of $176 billion is expected to account for 30 percent of industry costs.

News agency Bloomberg reported last month a sharp decline in cargo shipments in the belly of passenger jets. United’s cargo traffic, for example, plunged 17 percent in August for the fourth straight drop that exceeded 10 percent, while Delta’s cargo was little changed for three months in a row. Meanwhile, American Airlines extended a streak of decreases that began in May.

The U.S. government’s effort to eliminate longer delays on airport tarmacs has made it more likely that airlines will cancel flights, according to a study by the Government Accountability Office. U.S. airlines were 24 percent more likely to cancel a flight in 2010 after the three-hour tarmac delay rule went into effect compared with the previous year, according to the GAO report.

Shares in FedEx, operator of the world’s biggest cargo airline, dropped the most in 2 1/2 years after the company cut its full-year profit forecast amid declining demand in the United States and Asia. Per-share earnings for the year will be $6.25 to $6.75, 10 cents lower than the previous range.

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