Despite challenges of high oil prices globally, airlines are expected to post profits of at least $12.7 billion in 2013, a 67 percent improvement from the $7.6 billion profit generated in 2012.
The International Air Transport Association (IATA) which upgraded its global outlook for the airline industry to a $12.7 billion profit in 2013 on $711 billion in revenues also says even though African airlines seem to be the weakest performers, passenger capacity growth of 6.7 percent is expected to be outstripped by demand growth of 7.5 percent which will improve load factors.
The global airlines’ body says the $12.7 billion profit represents a Return on Invested Capital (ROIC) of 4.8 percent adding that it will enable the industry to pay for its debts and pay equity investors a small dividend.
“Globally, this is $2.1 billion better than the $10.6 billion profit projected in March of this year and an improvement on the $7.6 billion profit generated in 2012,” said IATA.
“Margins remain weak. On revenues that are expected to total $711 billion this year, the net profit margin is expected to be 1.8 percent. This is a very tough business. The day-to-day challenges of keeping revenues ahead of costs remain monumental.”
Indicative of the characteristically razor thin profits of the airline industry, even this small margin will make 2013 the third strongest year for airlines since the events of 2001. In 2007 the industry earned 2.9 percent net profit margin ($14.7 billion) and in 2010 airlines generated a 3.3 percent net profit margin ($19.2 billion).
On average airlines will earn about $4 for every passenger carried—less than the cost of a sandwich in most places,” said Tony Tyler, IATA’s Director General.
According to him, airlines’ profitability is thin, but there is a solid performance improvement story over the last seven to eight years with more efficient use of assets ‘which is the main contributor.
The industry load factor is expected to average a record high of 80.3 percent in 2013—6.0 percentage points above 2006 levels. Additionally, airlines have found new sources of value that have increased the contribution of ancillary revenues from 0.5 percent in 2007 to over 5 percent in 2013.