2010 profit forecast for airlines soars

By Frank Jordans
Wednesday, December 15, 2010

GENEVA - Airlines will show better-than-expected earnings of $15.1 billion this year, lifted by surging travel demand in Asia, the International Air Transport Association said Tuesday.

The full-year estimate is a significant jump from the IATA's prediction in September of an $8.9 billion industry profit. The latest projection marks a massive turnaround from the sector's losses of $10 billion in 2009 and $16 billion in 2008.

In Asia, a rapidly expanding middle class and growing demand for air links between the continent's 15 mega-cities promise strong industry profits in the region, IATA chief executive Giovanni Bisignani said during a news conference in Geneva.

"The world is changing in aviation, and it's changing very, very quickly," Bisignani said. "Rapidly developing markets are shifting the industry's center of gravity to the East."

Asian carriers will contribute $7.7 billion to the global profit total, while North American airlines will earn $5.1 billion. Europe, with estimated profits of $400 million, lags behind the Middle East, at $700 million, and Latin America, at $1.2 billion.

The IATA said passenger traffic across Asia outstripped that of North America for the first time in 2009. Together, the two regions are largely responsible for the industry's recovery this year, with weak economic conditions in Europe and low margins acting as the biggest drag on profits, the group said.

By passenger miles flown - a common measure of airline size - Delta ranks as the world's number one, followed by American Airlines and United, with Air China outside the top 10.

But burgeoning demand in the East will likely see Asian carriers rise up the table in terms of passenger miles, too, especially if airlines there merge like U.S.-based carriers have in recent year.

Investors are favoring shares of carriers in Asia. Based on its market value, Air China is now worth twice what investors are valuing either Delta or Germany's Lufthansa, highlighting the industry's shift away from the United States and Europe to higher-growth countries, the IATA said.

Air China has seen its market capitalization surge to $20 billion, followed by Singapore Airlines with $14 billion and Hong Kong-based Cathay Pacific with $12 billion.

China Southern has a market cap of $11 billion, as does LATAM, the Latin American airline recently created from the merger of Chile's LAN and TAM of Brazil. Delta and Lufthansa follow with market capitalizations of $10 billion each.

The industry is projected to earn a collective $9.1 billion next year, as rising fuel prices are expected to cut into profitability, the IATA said. Bisignani warned that profit margins remain "pathetically low" and pose a threat to the industry in case of another economic shock.

Recently introduced air travel taxes in Britain, Germany and Austria, and efforts to establish a regional carbon emissions trading market harm Europe's competitiveness, Bisignani said, noting that these further squeeze profit margins for the continent's carriers.

"2011 is going to be a much more challenging period," said IATA chief economist Brian Pearce, noting that heavy debts and new taxes will weigh on consumer travel spending in Europe and North America.

- Associated Press

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