Airline financial outlook improves due to lower fuel prices
- North America: North American airlines are expected to post a US$5.8 billion profit in 2013, increasing to US$8.3 billion in 2014. Mergers on home markets and joint ventures on some international markets have helped to improve asset utilization to high levels and generate efficiencies. But higher government fees on airlines and their passengers, as a result of the Congressional budget deal, risk damaging airlines and investors.
- Europe: European airlines will see profitability improve in 2014 over 2013. Net profits for 2013 are expected to be US$1.7 billion, rising to US$3.2 billion in 2014. Efficiencies from joint ventures over the North Atlantic are expected to be a major contributor to this improvement. But Europe remains burdened by high costs, cumbersome regulation and high taxes.
- Asia-Pacific: Asia-Pacific airlines are expected to post a US$3.2 billion profit in 2013, which will be a third consecutive year of declining profits. The trend is expected to reverse in 2014 with a slight uptick to US$4.1 billion. In both years, the region is expected to deliver the second largest absolute profit. The profitability of the region’s airlines is subdued by the ongoing weakness in cargo demand and the effect on supply-demand conditions of an expected delivery of 710 new aircraft next year.
- Middle East: Middle Eastern airlines are expected to return a net profit of US$1.6 billion in 2013, increasing to US$2.4 billion in 2014. The region’s hubs, particularly in the Gulf, continue to expand in support of growing long-haul connectivity.
- Latin America: Latin America is expected to return a US$700 million profit in 2013, increasing to US$1.5 billion in 2014. Airlines in the region are burdened with infrastructure that is not keeping pace with the growth in demand. While some countries, such as Chile, have worked hard to evolve a policy framework on which airlines can grow and drive economic growth, others have policies that are counterproductive.
- Africa: The outlook for African airlines is unchanged from September with a US$100 million loss in 2013 switching to a US$100 million profit in 2014. It is the weakest financial performance of any region. African carriers face stiff competition on intercontinental routes, while intra-African connectivity is underdeveloped as a result of market access restrictions. Additionally, high operating costs, heavy taxation and infrastructure deficiencies hamper the region’s airlines. Improving safety remains the top priority for the region.
“Airlines have shown that they can rise to the challenges of a difficult trading environment. That’s good news for economies and consumers that depend on global connectivity,” Tyler said. “But I am increasingly concerned that governments have not fully appreciated the critical role that aviation plays in our connected world. Regulatory and tax burdens incrementally, but significantly, rise year-on-year.”