IATA predicts that airlines in Non-Japan Asia will continue to expand at a strong pace. AirAsia A320. By Rob Finlayson

IATA has warned that the economic outlook for the airline industry has deteriorated since its June update despite the stronger-than-expected surge in the first half (ATW Daily News, June 7).

IATA DG Tony Tyler said the airline industry net profits should total $6.9 billion in 2011 on revenues of $594 billion, up from the previous projection of $4 billion, but well down on the $16 billion achieved in 2010.

“Airlines are going to make a little more money in 2011 than we thought,” Tyler said. “That is good news. Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement.” But Tyler cautioned that $6.9 billion only represented a 1.2% margin. And that margin is going to get worse, Tyler warned, with the 2012 outlook for “a year of sluggish growth and weak profits,” with net profit forecast at just $4.9 billion or 0.8% on revenues of $632 billion.

Tyler said that IATA’s forecast is built around global projected GDP growth of 2.5% in 2011 falling to 2.4% in 2012.

“Airline financial performance is closely linked to the health of world economies. Whenever GDP growth has slowed below 2% the airline industry has lost money. We will be perilously close to that level at least through 2012,” Tyler said. “The industry is brittle. Any shock has the potential to put us in the red.”

Passenger demand is driving the short-term spike with numbers forecast to grow 5.9% to 2.83 billion, up from 4.4%—or 2.79 billion—projected in June.

“The strong travel trend in 2011 is built on residual confidence from economic optimism at the beginning of the year. While some economies may be more durable—China for example—the overall outlook is for a weaker end to 2011.”

Of concern, however, is that world trade basically stopped growing at the end of 2010, said Tyler, noting that airfreight, which has stagnated since the start of the year, is reflecting that slowdown in economic growth. “We have slashed full-year volume growth projection from 5.5% to 1.4%. It appears unlikely that a revival in airfreight will begin before 2012.”

Business confidence in the manufacturing sector of the major economies has fallento just above the 50-level of the index, which indicates that purchasing managers expect growth to stop, said IATA.

Tyler said that oil prices have remained consistent with the previous forecast of $110/barrel (Brent Crude). “This is 39% higher than the $79.4 average price of 2010. A total fuel bill of $176 billion is expected to account for 30% of industry costs,” Tyler said.

Tyler said “there are likely to be major variations” in regional growth. “European airlines achieved strong growth in 2011 on international markets but the very weak economic outlook for this region is expected to limit growth in next year,” he said. However, IATA expects a solid rebound in the traffic carried by Asia/Pacific airlines with the Japanese economy expected to rebound from earthquake-damaged levels this year.

“Non-Japan Asia is forecast to continue to expand at a strong pace. Growth prospects also remain relatively strong in Latin America and the Middle East, albeit considerably down on the pace of the post-recession period,” Tyler said.

Tyler urged governments to focus on aviation policy as a key part of their economic policy and not to add more taxes to the industry.

“Governments must carefully evaluate the negative impact of the current high levels of taxation, absolutely resist increases or new taxes, and develop policies that support aviation’s growth with efficient infrastructure. Time and again aviation has shown its resilience. People need and want to travel. Now is the time to harness the economic possibilities that this presents,” Tyler said.