As airlines struggled this past third quarter, good news came from the International Air Transport Association (IATA). After surveying airline chief financial officers, the industry trade group reported an increase in market confidence from airline CFOs, with over 73 percent of them expecting profitability to improve over the next twelve months. How will airlines stack up with this prediction?
It’s not too difficult for airlines to improve – it seems as though they’re at their worst. Profitability weakened throughout the third quarter, and weak demand attributed to low yields.
Economically, the markets are making a comeback – an indication that we’re heading out of a recession. Unfortunately, the unemployment rate is still high, but on a broad-based scale, companies are improving financially. Once firms have more money to spend, the number business travelers should increase, as well as leisure travelers.
The outlook for passenger traffic, says the IATA, is expected to improve within the next twelve months – 60 percent of airline CFOs said they expect increases over that period. Nearly half of airline CFOs also indicated that they expect an increase in yields for passenger service (46.7 percent), and 69.6 percent expect an increase in cargo.
Half of airline CFOs said they expect to reduce headcount over the next twelve months. As for employment, the IATA stated:
“Employment trends tend to lag the cycle in air traffic and airline profits, as airline need to restructure after recessions to reduce losses. While there are early indications of an upturn in traffic volumes, the downward movement in employment levels reported in July has continued during the last quarter.”
The IATA says the survey results are consistent with their forecast for $11 billion of net losses this year for airlines. Overall, it looks as though airlines will soon see increases in passenger numbers, as well as yields.
Source: IATA (Q3: Airline Business Confidence Survey)
