Global Airline Profitability On The Horizon

Surging passenger and freight demand is propelling a dramatic improvement in the
financial outlook for the global airline industry. Asian and U.S. carriers are
leading the turnaround, and even Europe’s economic and volcano woes should not
be enough to derail a return to profitability this year.


Airliner

Just three months ago the International Air Transport Association (IATA) was
predicting a third consecutive annual loss for airlines. Now, it believes 2010
will be the industry’s first year in the black since 2007. This steep upgrade
aligns with airline reports that demand growth is accelerating as the year
progresses.

The latest $2.5-billion profit projection still represents an anemic margin for a
sector with revenues of more than $540 billion. But the trend is moving in the
right direction, allowing airlines in most regions to cautiously resume network
growth and focus once again on fleet modernization.

The extent of the improvement since the previous update in March has surprised
forecasters, IATA Director General Giovanni Bisignani acknowledged during the
group’s annual general meeting here June 7. “The global economy is recovering
from the depths of the financial crisis much more quickly than could have been
anticipated,” he says. IATA thought it would take at least three years to
recover the 14% revenue drop in 2009, but the industry has already made up 75%
of the fall-off.

Air Canada CEO Calin Rovinescu agrees there is “no question [the industry] has seen a rebound” this year, although he cautions that it is not yet time to declare
victory. While traffic is strengthening, “the jury is still out on yields,” he
says.

The airline is watching the European market closely, as it is launching a wave of
new transatlantic flights this summer. “The European malaise affects everyone,”
Rovinescu says. Air Canada’s growth will be strongest on transpacific routes,
although he notes this is where the largest cuts were made in the downturn.

While it is not adding any more aircraft this
year, the airline is boosting capacity by up to 6% year-on-year by increasing
utilization of its existing fleet. Pearce says this trend could occur
industry-wide, as airline fleets are generally at historically low utilization
levels.