Airline Profitability Ratcheted Up Over 3 Fold in 2010, But 2011 Could Be Bleak (UAUA, LCC, AMR, More...)
In what some may see as a signal to a recovering economy, the International Air Transport Association (IATA) revised their FY10 profitability outlook for FY10. In June, the IATA saw airlines earning a profit of $2.5 billion for the year. However, that number has been revised up 356% to $8.9 billion.
Looking to FY11, the Association sees profits of just $5.3 billion.
CEO Giovanni Bisignani notes that the prediction for $8.9 billion in profits will "start to recoup the nearly $50 billion lost over the previous decade." He notes that, at the thin margins that the industry operates at, a 3.5x increase in profits translates to only a 1.6% gain in margins.
Factors influencing the increased outlook include:
Airlines to watch include: UAL Corporation (Nasdaq: UAUA), US Airways Group, Inc. (NYSE: LCC), AMR Corp. (NYSE: AMR), JetBlue Airways Corp. (Nasdaq: JBLU0, and Delta Air Lines Inc. (NYSE: DAL) among others.
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Looking to FY11, the Association sees profits of just $5.3 billion.
CEO Giovanni Bisignani notes that the prediction for $8.9 billion in profits will "start to recoup the nearly $50 billion lost over the previous decade." He notes that, at the thin margins that the industry operates at, a 3.5x increase in profits translates to only a 1.6% gain in margins.
Factors influencing the increased outlook include:
- Improved demand and capacity, with traffic increased 3% - 4% over 2008 pre-crisis levels;
- Yields are improving as capacities that were cut last year are slower to recover than demand improvements. Load factors are increasing, providing some pricing power to airlines;
- Revs are expected to grow to $560 billion, about $15 billion than the June forecast. By comparison, revs in 2008 were $564 billion; and
- This revised outlook has oil at $79 per barrel, but the overall bill is clocked at $137 billion, or $3 billion lower than the June forecast.
Airlines to watch include: UAL Corporation (Nasdaq: UAUA), US Airways Group, Inc. (NYSE: LCC), AMR Corp. (NYSE: AMR), JetBlue Airways Corp. (Nasdaq: JBLU0, and Delta Air Lines Inc. (NYSE: DAL) among others.
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