IATA CEO Expects Airline Margins to Shrink Further, Sees No Relief in Sight (AMR)
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According to a report from the International Air Transport Association (IATA), challenges which still face the airline industry aren't expected to lift anytime soon.
Regulatory costs and overcapacity in the industry will continue to shrink margins for airlines heading into 2012 and beyond. Recent data suggests airlines are expected to see net income of just 0.8 percent of revenue in 2012, possibly compressing further if action is not taken.
IATA's CEO Tony Tyler believes earnings in 2012 will sink 30 percent to $4.9 billion -- a figure which could prove too optimistic. IATA notes the industry has lost money in seven of the past 10 years, even as revenue has doubled to $550 billion annually.
Recently released traffic figures show growth slowing from 6 percent in July to 4.5 percent in August. Cargo demand also slipped 3.8 percent compared with August 2010.
Airlines will be further saddled by the new carbon dioxide-emissions cap-and-trade system being implemented by the European Union in January, expected to add $1.2 billion of costs.
"It would be a good thing for the financial health of the industry to have a more consolidated, less fragmented industry, but the big question is will it happen?" Tyler said. "I’m skeptical. I think it will be a long and very slow process."
The news comes as industry veteran AMR Corp. (NYSE: AMR) was slammed Monday. The stock was halted seven times by a circuit breaker on rumors it might seek bankruptcy for it's American Airlines arm. Shares ended up closing 33.1 percent lower.
Other airlines to watch on the news include United Continental (NYSE: UAL), Delta Airlines (NYSE: DAL), JetBlue (Nasdaq: JBLU), US Airways (NYSE: LCC), and Southwest Air (NYSE: LUV), among others.
Regulatory costs and overcapacity in the industry will continue to shrink margins for airlines heading into 2012 and beyond. Recent data suggests airlines are expected to see net income of just 0.8 percent of revenue in 2012, possibly compressing further if action is not taken.
IATA's CEO Tony Tyler believes earnings in 2012 will sink 30 percent to $4.9 billion -- a figure which could prove too optimistic. IATA notes the industry has lost money in seven of the past 10 years, even as revenue has doubled to $550 billion annually.
Recently released traffic figures show growth slowing from 6 percent in July to 4.5 percent in August. Cargo demand also slipped 3.8 percent compared with August 2010.
Airlines will be further saddled by the new carbon dioxide-emissions cap-and-trade system being implemented by the European Union in January, expected to add $1.2 billion of costs.
"It would be a good thing for the financial health of the industry to have a more consolidated, less fragmented industry, but the big question is will it happen?" Tyler said. "I’m skeptical. I think it will be a long and very slow process."
The news comes as industry veteran AMR Corp. (NYSE: AMR) was slammed Monday. The stock was halted seven times by a circuit breaker on rumors it might seek bankruptcy for it's American Airlines arm. Shares ended up closing 33.1 percent lower.
Other airlines to watch on the news include United Continental (NYSE: UAL), Delta Airlines (NYSE: DAL), JetBlue (Nasdaq: JBLU), US Airways (NYSE: LCC), and Southwest Air (NYSE: LUV), among others.
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