IATA indicates a decrease in air travel. This decrease can cause an overall decline in tourism. The following data may help one to understand forthcoming trends in the travel market.
A brief look
The International Air Transport Association (IATA) in the first week of June 2011 further downgraded its 2011 airline industry profit forecast to $4 billion. This would be a 54 per cent fall compared with the forecast of a $8.6 billion profit in March and a 78 per cent drop compared with the $18 billion net profit (revised from $16 billion), recorded in 2010. On expected revenues of $598 billion, a $4 billion profit equates to a 0.7 per cent margin.
“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.
The number of price-sensitive leisure travelers has fallen 3-4 per cent over the past five months, as travel costs were driven higher by fuel prices and, in Europe, by new passenger taxes. Less price-sensitive premium travel demand has been more robust in the face of rising prices and continues to be driven by growing world trade and business investment. Premium passenger growth has dipped from the 9 per cent of 2010, but is expected to be close to the historical trend this year at a 5-6 per cent rate.
Regional Highlights
Asia-Pacific carriers are expected to earn $2.1 billion – the most profitable of all regions. Even so, this is dramatically down from the $10 billion profit that the region achieved in 2010. Airlines in this region are more exposed than others to cargo markets and fuel price fluctuations. Asia-Pacific airlines carry 40 per cent of all air freight volumes, while low labour costs and relatively low hedging means fuel accounts for a bigger proportion of total costs. In addition, the Japanese earthquake and tsunami are expected to dent the region’s prospects for the remainder of the year. However, this will be more than offset by robust growth in both China and India. The continued dynamism of these economies means that Asia-Pacific is the only region where demand increases (6.4 per cent) are expected to outpace capacity growth (5.9 per cent).
North American carriers will see the $4.1 billion profit of 2010 fall to $1.2 billion. The region’s carriers are being hit on the cost side by rising fuel prices, exacerbated by an older, less fuel-efficient aircraft fleet. The region has also been hit on the demand side with 12 per cent of international revenues linked to the Japan market. This is being offset somewhat by a stronger than expected US economy and stronger inbound demand and exports fueled by the weak US dollar.
Careful capacity management is expected to see an overall demand increase of 4 per cent balanced by an equal increase in capacity.
European carriers will deliver a $500 million profit, down from $1.9 billion in 2010. The sovereign debt crisis is dampening demand from peripheral European economies. Core economies are benefiting from strong exports, but new and increased taxation of passengers is damaging price-sensitive demand. Much of the profit forecast for this year is expected to be generated on more buoyant long-haul markets. A capacity increase of 4.8 per cent is expected to outstrip demand growth of 3.9 per cent.
Middle East carriers will deliver a $100 million profit, down from $900 million in 2010. Political unrest in parts of the region is hurting demand. The major airlines in the region are expected to continue to win a market share on long-haul markets, flying passengers via Middle Eastern hubs. However, high fuel costs will weaken demand from key passenger segments and asset utilisation will be under downward pressure. Capacity growth of 15.5 per cent is expected to outstrip demand expansion of 14.6 per cent.
Latin American carriers will be the only region to deliver a third consecutive year of profits. The regional economies continue to show good growth, and trade links with the United States and Asia in particular are boosting traffic. Innovative business models and consolidation have combined to generate reasonable profits from these growing markets. But a $100 million profit is down considerably on the $900 million profit of 2010. Capacity growth of 6.9 per cent will outstrip the 6 per cent increase growth in demand.
African carriers are forecast to be the only region to post a loss, $100 million, in 2011. Political unrest across Northern Africa is dampening demand, particularly in Egypt and Tunisia, which have proportionately large tourism industries. Economies and air transport demand in many African countries have grown strongly but local industry has struggled to turn this into profitable growth, hampered by poor infrastructure and restrictive government regulation. To compound the problem, capacity growth of 7.4 per cent will outstrip demand growth of 6.5 per cent.