Statisticians have been busy over the past few months assembling annual report cards for the airline industry for 1999. Their efforts appear to confirm that the year was one of traffic recovery but once more at the expense of profit margins.
Preliminary estimates by the International Civil Aviation Organization (ICAO) suggest that world scheduled freight and passenger traffic were back to a healthy running rate of 6% per year, thanks in large part to recovery in the world economy. Passenger load factors rose by a half a point to a high of more than 69%. International load factors set a new record as they topped the 70% mark.
Then comes the financial news. Airline revenues rose by 3.7% last year, the strongest growth for a couple of years, but expenses grew faster still at 5.2%. On ICAO's "tentative" estimate, that therefore left the world's scheduled airlines with an operating profit back down at $12.5 billion after the all too brief surge in 1998. The resulting operating margin of 4% actually represents a par performance for the airline industry by past standards, although still disappointing for those who had hoped for signs that the industry could do better than marginal profitability. ICAO adds that carriers in Latin America and the Middle East look to have achieved no better than breakeven.
ICAO has yet to report an estimate for the world net margin, but it doubts an improvement on the 2.8% recorded in 1998.
Behind the profit performance came a further 2%decline in yields. Overall, they slipped back to below ó79 per revenue tonne kilometre (or ó127 per mile). Unit costs edged down slightly by 0.8%. With fuel costs showing few signs of a major correction, ICAO seems doubtful that the results for the current year will be much improved.
Earlier figures from the International Air Transport Association (IATA)had painted a similar picture. While its members saw revenues grow again on their international services in 1999 - following a fall the year before - profits sank. The net result was back below $2 billion - the worst performance for half a decade. As IATA highlights, members may have achieved a sixth successive year of profitability but "it has become tenuous". For this year, it is not betting on much more than a $2.2 billion profit. It should be three times that level, warns the association.
Again, the damage came from a 4.1% decline in yields, which more than offset a 2% drop in unit costs. The weak financial results came despite an upswing in international traffic. Passenger traffic was up by 6.7% thanks to the Asian rebound and is expected to average annual growth of 5% through to 2003. Europe-Africa is topping the expected growth league. International freight was up still more sharply in 1999 at 8%but again the forecast is for growth to average 5.5% over the next four years led by the transpacific.
Further evidence of the extent of last year's recovery in Asia has continued to feed through as the major carriers report their annual results. With most of those now in (see table below) it is clear that the region is back in profit. Even the Japanese carriers, still struggling with a sluggish economy, had a little good news with improved operating results, Those are expected to stay static for this year too, although, as All Nippon Airways says, the foreseeable future will remain "largely unpredictable".
Source: Airline Business
