Monday, March 17, 2014

Air Cargo Uptick Predicted Despite Higher Fuel Costs and Change in Production Overheads

IATA Takes a Positive View of the Industry
Shipping News Feature

SWITZERLAND – WORLDWIDE – News from the International Air Transport Association (IATA) recently has been decidedly upbeat, with information released over the past two months showing moderate growth for the carriage of cargo worldwide and generally increasing across most of the geographical air freight markets, with the most recent information predicting that the airline industry remains on track to deliver a second consecutive year of improved profitability.

IATA claims that despite a slight downward revision to its industry outlook for 2014 to a sector profit of $18.7 billion from the previously forecast $19.7 billion, things are generally positive. It sees the main driver of this downward revision as higher oil prices which are now expected to average $108.0/barrel (Brent) which is $3.5/barrel above previous projections. The $3 billion added cost on the air industry’s fuel bill is expected to be largely offset by stronger demand, especially for cargo, which is being supported by a strengthening global economy. Overall industry revenues are expected to rise to $745 billion ($2 billion greater than previously projected).

IATA maintains that cargo demand is showing the biggest improvement in the air carriage sector. Instead of the previously projected 2.1% growth, it now appears that air freight is headed for 4.0% growth in 2014 with the yield decline moderated from the previously forecast 2.1% fall to a decline of 1.5%. There are however, several major changes which continue to challenge the cargo business, whilst traditionally air cargo has grown only slightly less than world trade (and at twice the rate of expansion of industrial production) the recent trend is for air cargo, world trade and industrial production to grow in tandem.

The Association states that the air industry is growing more slowly than normal at this stage of the economic cycle with the ‘on-shoring’ of production supply chains continuing to impact the cargo business driven by protectionist measures, some five hundred of these have been documented by Global Trade Alert in 2012 alone, and relative changes in production costs. For example, US energy prices have dropped whereas Chinese wage rates continue to rise requiring a recalculation of net prices.

Consolidated passenger and freight market profits vary from month to month (in January the Middle East again showed the way) but overall. North American airlines are expected to post a profit of $8.6 billion, the biggest contribution to industry profits. This is $300 million better than previously projected, reflecting the strength of the economic recovery in the US whilst European airlines are expected to post a $3.1 billion profit. That is $100 million less than previously forecast, but more than double the $1.2 billion profit posted in 2013.

Asia-Pacific airlines are expected to post profits of $3.7 billion and an EBIT margin of 3.4%. This is an improvement over 2013, helped by a slightly better outlook for cargo markets. Airlines in this region have the largest share of the international air cargo market but the sector upturn still fails to compensate for the fall in passenger revenue. Middle Eastern airlines are expected to post a $2.2 billion profit. This is an improvement on the $1.6 billion profit that the region’s airlines made in 2013, but it is a $200 million downgrading from the previous forecast whilst Latin American airlines are expected to post a $1 billion profit, some $500 million less than previously projected, following a weaker than expected improvement in 2013 and African airlines are expected to post a $100 million profit, unchanged from the previous forecast, but reversing the $100 million loss in 2013.