Regional airlines set for higher profits

ASIA-PACIFIC airlines are tipped to make more money than earlier forecasts.

ASIA-PACIFIC airlines are tipped to make more money than earlier forecasts after the International Air Transport Association yesterday upgraded its 2012 profit guidance for the region by $US300 million ($289m) to $US2.3 billion.

This will assure the Asia-Pacific stays the world's most profitable area as part of a revised global forecast that now expects airlines to make $US4.1bn, up from $US3bn forecast in June.

IATA said Chinese domestic demand was still growing at nearly 10 per cent and demand for regional and long-haul travel in the Asia-Pacific, including premium travel, had held up better than expected. The international airline umbrella organisation is also expecting a big improvement next year to $US7.5bn as growth increases moderately. But global figures for this year and next remain well below last year's $US8.4bn profit and IATA officials said they believed the downward cycle had yet to bottom out.

"I think we've got a few more months of weakness," IATA chief economist Brian Pearce said. "We're hoping we're going to hit bottom in the second half of this year, towards year end. I don't think we've got there yet and our moderately better outlook is really contingent on what economists are expecting in the broader economy.

"We're an industry which is critically dependent on what happens in the broader economy."

IATA director-general Tony Tyler warned against getting too excited about the improvement, noting it represented a $1.1bn revision on revenues of $636bn. He said this meant that the net profit margin would now be 0.6 per cent instead of 0.5 per cent.

"That, of course, is a minuscule margin but in the past the industry would have been losing money with oil prices averaging $US110 a barrel and global GDP growth of 2.1 per cent," he said.

Negatives cited by IATA officials included the continuing eurozone crisis, easing in the US and Japan, and the ripple effects of the slowdown in China.

Passenger traffic in the first half of the year was slightly better than expected and IATA increased its projection for the year by half a percentage point to 5.3 per cent.

This was still below the historical annual average of 6 per cent and there had been a slide in premium passengers.

Despite the bad news, however, airlines had recorded a strong operational performance. "This is, in part, evidence that the consolidation that has taken place in recent years is strengthening the business," Mr Tyler said.

"In addition, airlines have restructured their businesses, cut costs, improved processes, invested in more fuel-efficient aircraft, and much more.

"This combination is keeping the industry's head above water."

A regional breakdown showed European airlines remain the weakest and are expected to lose $US1.2bn this year, up from $1.1bn three months ago.

North American airlines showed the greatest improvement and are tipped to make $US1.9bn, up $500m, after trimming capacity and improving yields.

Middle Eastern carriers also saw a major improvement in their prospects, from $400m to $700m, as they have competed to grow long-haul business and increase market share.