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Airlines forecast strong earnings for this year

By Frank Jordans
Associated Press / December 15, 2010

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GENEVA — Airlines will show better-than-expected earnings of $15.1 billion this year as investors favor shares of carriers in Asia, where travel is expected to grow strongly, the International Air Transport Association said yesterday.

Based on its market value, Air China is now worth twice what investors are valuing either Delta in the United States or Germany’s Lufthansa, highlighting the industry’s shift to higher-growth countries, IATA said.

“The world is changing in aviation, and it’s changing very, very quickly,’’ said Giovanni Bisignani, the association’s chief executive. “Rapidly developing markets are shifting the industry’s center of gravity to the East.’’

Air China has seen its market capitalization surge to $20 billion, followed by Singapore Airlines with $14 billion and Hong Kong-based Cathay Pacific with $12 billion.

By passenger miles flown — a common measure of airline size — Delta Air Lines is still the world’s number one carrier, followed by American Airlines and United Airlines, with Air China outside the top 10. But burgeoning demand in the East will likely mean that Asian carriers rise up the table in terms of passenger miles, too.

IATA said passenger traffic across Asia outstripped that of North America for the first time in 2009.

Together, the two regions are largely responsible for the industry’s recovery this year, with weak economic conditions in Europe and low margins acting as the biggest drag on profits, the group said.

Airlines will see a profit of $15.1 billion in 2010, IATA said. This marks a massive turnaround from the $10 billion industry loss in 2009 and $16 billion loss in 2008.

Asian carriers will contribute $7.7 billion to the global total, while North American airlines will earn $5.1 billion. The full-year estimate also is a significant jump from IATA’s prediction in September for an $8.9 billion industry profit in 2010.

“2011 is going to be a much more challenging period,’’ said IATA chief economist Brian Pearce, noting that heavy debts and new taxes will weigh on consumer travel spending in Europe and North America. IATA forecasts profits of $9.1 billion for the industry next year.

Bisignani warned that profit margins remain “pathetically low’’ and pose a threat to the industry in case of another economic shock. Fuel prices are also expected to hit earnings in 2011.

Still, the Geneva-based group representing some 230 carriers and 93 percent of scheduled air traffic said the outlook is bright for Asia.

A rapidly expanding middle class in Asia and growing demand for air links between the continent’s 15 mega-cities, with over 10 million inhabitants each, promise strong industry profits in the region, Bisignani said.

If “archaic ownership rules’’ in the United States were changed, the industry might soon see the first takeover of a US carrier by an Asian airline, he added.