IATA: Airlines’ outlook for profitability remains positive

Airline profit expectations for the year ahead are positive even though recent improvements in financial performance have paused, according to International Air Transport Association’s (IATA) quarte

IATA: Airlines’ outlook for profitability remains positive

Airline profit expectations for the year ahead are positive even though recent improvements in financial performance have paused, according to International Air Transport Association’s (IATA) quarterly survey of airline chief financial officers (CFOs) and heads of cargo in July.

In a press statement, IATA said, “Recent improvements in airline financial performance appear to be coming to an end with the July survey of airline CFOs and cargo heads showing no change in the second quarter of 2014 (2Q14) profits compared to a year ago.

“This is in contrast to the outlook for profitability, which remains positive,” it said.

It noted, there was a similar divergence in current performance and outlook back in 2009 and in that occasion, like this current divergence, is likely explained by survey responses on yield developments.

“Respondents have reported declines in yields during 2Q, which is consistent with the pause in recent improvements in airline financial performance.

“But there is confidence about a rise in yields over the next 12 months, which is the likely driver of the positive outlook for profitability,” it added.

Meanwhile, on passengers demand, IATA said, its survey showed passenger traffic has increased during 2Q14 compared to a year ago.

“The rate of improvement in July slowed compared to April. This is likely reflecting a lull in air travel growth in earlier months due to some slowdown in improvement in demand drivers compared to late-2013.

“Latest data, however, saw there is resumption in both air travel growth and positive trends in demand drivers,” it explained.

Looking ahead, IATA noted the demand backdrop suggests that growth in passenger volumes in the months ahead will be at least at the current rate.

“The proportion of survey respondents expecting a rise in traffic volumes is significant at 69 per cent,” it added.

Aside from that, the survey results for cargo were positive and reflect important developments in the demand environment.

“Respondents reported growth in air freight volumes over recent months, which is consistent with freight data and the resumption in growth in business confidence and world trade volumes.

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“The outlook for cargo volumes remains positive with 56 per cent of respondents expecting an increase in demand over the next 12 months,” it explained.

IATA’s July survey also revealed that previous declines in input costs have reversed.

“With respect to 2Q, respondents now see no decline in input costs compared to a year ahead (as they had done in prior quarters) – costs are now in line with 2Q13.

“The rise in input costs largely reflects increases in oil prices over recent months due to conflict related supply concerns,” IATA said.

Moreover, it added recent developments have likely caused survey respondents to expect no change in input costs during the year ahead – compared to declines they were expecting before.

Previous surveys responses included reference to cost cutting measures as reasons for decline in current/future cost expectations, but recent increases in crude oil prices (and the implications for jet fuel prices) appear to be outweighing those gains, it noted.

As for yield developments in the airline sector, IATA’s July survey results indicate that passenger yields declined in 2Q14 compared to the year ago period.

“The outlook, however, points to a positive reversal in the trend, with 42 per cent of respondents expecting to see an increase in yields during the next 12 months.

“The outlook is supported by growth in air transport demand and potentially also by capacity management since the view is for a solid rebound in passenger yields ahead,” it pointed out.

IATA added, consistent with recent signs of improvement in cargo demand, cargo yields were reported to have declined at a slightly slower pace in 2Q compared to a year ago.

“Moreover, the outlook for cargo yields for the next 12 months has improved.

“While a majority of respondents said they expect no change during the year ahead (57 per cent), an increasing proportion believes there will a rise in yields (31 per cent),” it said.

As for airline employment activity, IATA’s survey showed a decline during 2Q compared to a year ago.

The July survey revealed that CFOs and cargo heads expect no growth in employment in the year ahead, IATA reported.

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