Rosier outlook but far from banner year for aviation industry

The outlook for global airlines is "cautiously optimistic" this year on the back of better-than-expected passenger growth figures for last year, with Middle East carriers delivering almost a third of the total expansion in international passenger markets.

For air freight, however, the outlook remains gloomy as cargo demand continued to shrink, according to the International Air Transport Association's (Iata) annual air traffic performance report.

"We are entering 2013 with some guarded optimism," said Tony Tyler, Iata's director general and chief executive. "Business confidence is up. The euro-zone situation is more stable than it was a year-ago and the US avoided the fiscal cliff, but significant headwinds remain.

"There is no end in sight for high fuel prices and GDP growth is projected at just 2.3 per cent. But improved business confidence should help cargo markets to recover the lost ground from 2012. And the momentum built-up at the year-end should see the passenger business expand. 2013 will not be a banner year for profitability, but we should see some improvement on 2012."

Full-year traffic data for last year showed a 5.3 per cent year-on-year increase in passenger demand, slightly down on 2011 growth of 5.9 per cent but above the 5 per cent 20-year average. Cargo demand however, shrank by 1.5 per cent.

Middle East airlines contributed 15.4 per cent growth to international demand, well ahead of the 8.9 per cent growth recorded in 2011, which was suppressed by the Arab Spring.

This was achieved with a capacity expansion of 12.5 per cent and an improving load factor, up 77.4 per cent. "The region's carriers increased the connectivity of their expanding hubs with significant increases in both network destinations and frequency," reported Iata. "Despite the expansion, the improved load factor indicates that the growth is sustainable and that airlines in the region have been successful in attracting new passengers."

Demand in international markets expanded at a faster rate - at 6 per cent - than domestic travel at 4 per cent, but in both cases emerging markets were the main drivers of growth, said Iata's report.

"Passenger demand grew strongly in 2012 despite the economic bad news that dominated much of the last 12 months. This demonstrates just how integral global air travel is for today's connected world. At the same time, near-record load factors illustrate the extreme care with which airlines manage capacity.

Growth and high aircraft utilisation combined to help airlines deliver an estimated US$6.7 billion (Dh24.61bn) profit in 2012 despite high fuel prices. But with a net profit margin of just 1 per cent the industry is only just keeping its head above water."

On freight, Mr Tyler said the industry had suffered a one-two punch. World trade declined sharply. And the goods that were traded shifted towards bulk commodities more suited for sea shipping.

"The outstanding bright spot was the development of trade between Asia and Africa, which supported strong growth for airlines based in the Middle East at 14.7 per cent and Africa at 7.1 per cent," said Mr Tyler.

In its December outlook, Iata projected 4.5 per cent growth in passenger markets this year and 1.4 per cent growth for cargo demand. That will contribute to an improvement in profitability to $8.4bn - a 1.3 per cent net profit margin.