Airlines On An Improving Trend Of Profitabilty

June 03--Doha: The aviation industry will continue to see an improving trend in profitability and generate more favourable returns to investors this year, but the projected net profit margin of just 2.4% is well below the minimum of other industries.

Airlines are expected to achieve a global net profit of US$18 billion, strengthening from the $6.1 billion earned in 2012 and $10.6 billion last year. The 2014 profit translates into less than $6 per passenger.

Tony Tyler, director-general of the International Air Transport Association (IATA), said the aviation industry's financial performance does not yet match the value it delivers.

His comments were made in his state of the industry address to the 70th IATA Annual General Meeting and World Air Transport Summit held in the Qatari capital yesterday.

The industry's average return on invested capital is expected to reach 5.4% this year, up from 3.7% in 2012 and 4.4% in 2013.

But even with the improvement, there remains a gap before the return reaches the industry's cost of capital ? considered the minimum in most industries ? which is estimated in the 7-8% range, according to the trade body that represents 242 airlines comprising 84% of global air traffic.

The profit projection announced by Mr Tyler is a slight downgrade from the previous forecast of $18.7 billion IATA made in March, resulting partly from the deteriorated economic environment.

However, the IATA chief noted an improved industry structure is among the factors supporting strengthened performance this year.

The current profit forecast is built on expected global GDP growth this year of 2.8%, below the 2.9% forecast in March, and growth in world trade of 3.6%, down from 4.5%.

Economic prospects are, however, expected to improve as the year progresses.

Mr Tyler called for airlines, governments, and industry stakeholders to guide the development of the commercial airline industry into its next century with a global mindset and based on a foundation of global standards.

"Securing aviation's future begins with some immediate challenges. Airlines must be profitable, safe and secure businesses. We need to provide efficient, customer-focused services. And sustainability must be integral to everything we do," said Mr Tyler.

This year, airlines will connect 3.3 billion people and 52 million tonnes of cargo over 50,000 routes, supporting 58 million jobs and delivering goods with a value of $6.8 trillion.

"And by working together with a global mindset, there is enormous potential still to be achieved," Mr Tyler said, noting that aviation is a catalyst for economic growth.

Airlines remain burdened with high taxes, which this year are expected to reach $121 billion, up from $113 billion last year.

Mr Tyler reiterated the industry's commitment to working together and with governments in the constant pursuit of improved safety. Last year there were 29 million flights with Western-built jet aircraft and only 12 hull losses.

"The loss of MH 370 points us to an immediate need. A large commercial airliner going missing without a trace for so long is unprecedented in modern aviation. It must not happen again. IATA, the ICAO (International Civil Aviation Organization) and experts from around the world are working together to identify the best recommendations for improved global tracking. By September, we will deliver draft options to the ICAO," Mr Tyler said.

A global approach to improving security is also needed. "The industry is secure, but passengers still say security remains their biggest travel hassle. Inconsistencies across jurisdictions defy understanding," Mr Tyler said.

Aviation is an intensely regulated and highly taxed industry. Mr Tyler said the industry could better fulfil its potential if governments regulated it with a long-term view, aided by global standards, and focused on taking advantage of aviation's role as a global economic catalyst.

Copyright 2014 - Bangkok Post, Thailand