Flying in still-troubled skies
GENEVA, SWITZERLAND – Tony Tyler, former chief executive of Cathay Pacific, will succeed Giovanni Bisignani as Iata’s (International Air Transport Association) director general and CEO, effective 1 July 2011, the organization’s member companies voted 7 June.
Tyler steps into a job that won’t get any easier this year, with Iata also announcing this week that it is sharply cutting its forecast for airline profits for 2011 to $4 billion, a 54 percent fall compared with the $8.6 billion profit forecast in March.
Tom Tyler, Iata's new CEO
Giovanni Bisigniani, outgoing head of Iata
It will be a 78 percent drop compared with the $18 billion net profit (revised from $16 billion) recorded in 2010, Iata noted in a statement Monday. “On expected revenues of $598 billion, a $4 billion profit equates to a 0.7% margin.”
Natural disasters, oil prices, unrest creating “unprecedented shocks”
Bisignani handed out the glum assessment. “Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year. That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance. The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7 percent margin, there is little buffer left against further shocks,” the outgoing director says.
Airline profit factors not the same as in 2008
The gloomy picture is not, however, a repeat of 2008, when the global economic crisis caused major problems for the airlines. A number of factors have changed significantly.
- Fuel is again a factor but the price spike, with an expected high of $115 a barrel this year, is different. Oil inventories are low, but there is ” substantial spare OPEC and refinery capacity, which was not the case three years ago. Second, the monetary expansion that fuelled a surge in financial investments in commodities is ending, which will remove a major upward pressure on fuel prices.”
- Passenger and cargo demand are both on the rise, thanks to higher GDP (gross domestic product), both the increases are smaller than earlier projected, and the “price-sensitive leisure” travellers market fell by 3-4 percent in the first five months of the year as fuel prices rose
- Passenger load factors were “hovering around 77 percent” by April, “more than a full percentage point below the 78.4 percent achieved for international traffic in 2010″, with capacity growing (5.8 percent) faster than demand (4.7 percent)
- Global economic growth is the key risk factor: “High energy prices will certainly have a slowing impact on economic growth. However, the impact will be mitigated by two factors. First, while high oil prices previously triggered recessions, today’s economies (which generate a unit of GDP using just half the energy required in the mid-1970s) are less sensitive. Second, the corporate sector is cash-rich, business confidence is high, and world trade continues to expand at around 9 percent annually. The International Monetary Fund and others have raised global growth projections, which would indicate a recovery in demand growth to the historical 5.6 percent level for the second half of 2011. IATA’s forecast for continued, albeit lower, airline profits despite $110 a barrel oil prices, is dependant on a strong economy to generate sufficient revenues to partially offset higher fuel costs.
Geneva, Switzerland (GenevaLunch) – The Geneva-based International Air Transport Association (IATA) released figures 25 June showing that, while still falling, the drop in the number of air travellers in May 2009 was slightly smaller than in previous months, lending credence to reports of a bottoming-out of the recession. Worldwide, travel figures were 9.3 percent down in May compared to May 2008. The load factor in May, the ratio of passengers flown over airline capacity, was lower than a year ago, at 71.2 percent.
International freight travel figures were relatively better as well, though still below levels of last year. “We may have hit bottom, but we are a long way from recovery,” said Giovanni Bisignani, IATA’s director general and CEO.
Solar Impulse computer model in flight (image: EPFL)
Duebendorf, Switzerland (GenevaLunch) – “Yesterday, it was a dream. Today, it is an airplane – tomorrow it will be an ambassador of renewable energies”, Bertrand Piccard told journalists gathered Friday 26 June for the unveiling of his futuristic fuel-free airplane Solar Impulse.
Piccard is the head of a project to build and fly a plane that uses only the sun’s energy to fly non-stop around the world.
