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IATA predicts upswing in cargo demand

By control on March 20, 2013

The International Air Transport Association sees improved cargo forecasts in its crystal ball.

In 2013, IATA expects cargo demand to grow by 2.7 percent and cargo yields to be flat – an improvement over the last two years, which has seen cargo demand and yields decline.

The organization announced a modest improvement in its forecast for the 2013 financial performance of the global airline industry. Stronger revenues, including those from cargo, are the main reason for the improved outlook.

IATA expects airlines to produce a combined net post-tax profit margin of 1.6 percent with a net post-tax profit of $10.6 billion. Both these figures are higher than previous projections.

"Industry profits are taking a small step in the right direction,” Tony Tyler, IATA's director general and CEO, said. “Against a backdrop of improved optimism for global economic prospects, passenger demand has been strong and cargo markets are starting to grow again. The economic optimism is also pushing fuel prices higher. We are seeing a $12 billion improvement in revenue, and a $9-10 billion increase in costs - most of which is related to fuel."

Asian-Pacific airlines are expected to deliver the largest contribution to industry performance with a $4.2 billion net profit expected for 2013. Asian carriers comprise about 40 percent of the air cargo market and will be the biggest beneficiaries of the predicted upturn in cargo demand.

North American, European, Middle Eastern and African airlines will see improvement, according to IATA. Latin American airlines will see a decline.

IATA noted that considerable risks that could derail recovery remain. Growing business confidence could take a hit from the financial situation in Cyprus, evidence that the Eurozone crisis is not over.

Fuel costs are increasing, but they will account for 33 percent of airline costs, the same as in 2012. There have also been significant gains in efficiency.

Airline cash flows are exhibiting better than expected performance with Asian carriers seeing the most improvement. The trend in the U.S. is flat, while European airlines are grappling with the recession.

"The improvements in industry profitability are encouraging. But they must be kept in perspective,” Tyler said. “We are projecting that airlines will make a net profit of $10.6 billion on $671 billion in industry revenues. By comparison last year Nestle, a single company, made over $11.5 billion in profit on revenues of about $100 billion. Chronic anemic profitability is characteristic across most of the aviation value chain when compared to other sectors. It will require more than improving economic conditions to fix. Neither the challenges nor the benefits of doing so should be underestimated.”