The first question asked after the publication of any forecast is usually 'are things going to get better?'. For airlines in 2013, as with everything in this industry, that will depend on where you are sitting.
So, your prospects may differ wildly depending if you are network carrier in newly profitable North America or one still gripped in Europe's recessionary vice. Even within regions fortunes can vary, in Asia your future could be very different depending on whether you are an airline exploiting the region's dynamic growth or one wrestling with air cargo stagnation.
IATA, in its latest forecast, has lifted its expectations for collective industry profits in 2013 to $8.4 billion. The vast majority of this will be contributed by North American and Asian carriers. For others, and European airlines in particularly, there is little immediate reason for cheer.
"It is still a quite a difficult economic environment, but it's one where the downward pressures are starting to ease," said IATA chief economist Brian Pearce, presenting the new forecast in Geveva. "I think we are past the low-point. We are expecting modest improvements in profitability.
"We see slightly better world trade growth and a slight decline in oil prices. We expect to see a further expansion of passenger travel. We expect it to break the 3 billion passenger mark in 2013. Because we see the US economy starting to pick up a bit, we expect to see some moderate improvement in cargo volumes."
Also helping the outlook for 2013 is the fact that 2012 does not appear to have been as bad as initially feared, especially given stubbornly high oil prices and weak economic growth. IATA now expects collective profits this year to reach $6.7 billion, up from the $4.1 million it was anticipating in October, itself an improvement on its June forecast. However, the forecast remains below the $8.8 billion airlines enjoyed in 2011.
IATA collective profits forecast
2012 (Oct forecast)
2012 (Dec forecast)
2013 (Dec forecast)
Source: based on IATA October and December 2012 forecasts
The brighter picture is built on the back of stronger traffic, improved yields and efficiency measures implemented by restructuring and consolidating airlines.
"I think this is partly the result of some consolidation," says Pearce on the 3% improvement in passenger yields in 2012. "We've had full-scale mergers in the USA. They have seen a very large rise in unit revenues. On long-haul, the joint ventures are bringing about more rational decision making."
Passenger traffic will grow more than 5% in 2012 and, though IATA sees growth moderating in 2013, it still expects global passengers numbers to reach 3.1 billion.
Fears over the impact of additional capacity are yet to to be realised as load factors remain at the high levels seen since the back-end of 2009. "The capacity is coming in at more than a hundred aircraft a month. But because of high fuel prices you are seeing a lot of older aircraft being put into storage," Pearce explains. "The net effect is that airlines are managing capacity in line with demand. And load factors are at record levels."
IATA director general Tony Tyler, having just hosted a meeting of IATA board members in Geneva, said the mood among airline chief executives was slightly better than in June. "Things have got a bit better in recent months then they had expected, but the European CEOs are still the gloomiest among the group. The frustration with taxation and regulators is deeply felt and the fact it seems so hard to do anything about it seems to grind them down."
It was European carriers which contributed most significantly to IATA's improved outlook for 2012. Expectations of breakeven may not look much, but it marks a significant turnaround on fears three months ago that European carriers would lose $1.2 billion.
At the heart of this improved outlook from IATA is their restructuring efforts, which helped deliver stronger than expected results in the third quarter. But intriguingly this optimism is not necessarily yet shared by the Association of European Airlines, which is still preparing the ground for a collective EBIT loss among its members of €1.3 billion ($1.7 billion) for 2012 - only €200 million better than it forecast three months ago.
"In Europe people are getting a bit more confident around the euro, but there is still no solution to the no-growth and the deep recessions in southern Europe," warns Pearce of the strong downward risk that remains in the region. IATA is projecting another year of no profit for the region's carriers in 2013.
"The US economy is expected to be the fastest growing of the mature markets, but that's still only 2%," adds Pearce. IATA has lifted its forecast for the region to $2.4 billion in 2012 and sees a further $1 billion profit improvement for 2013 to make it the most profitable of the regions next year.
"Although there are concerns about the fiscal cliff, we do see some improvement in the US and the US consumers are getting more confident. We think that will put a floor on the kind of consumer goods that travel by air."
The woes of the cargo sector have continued this year, with traffic and yields down 2%. IATA sees only a moderate improvement in freight's fortunes in 2013.
"I don't think it's structural. The reason for the divergence between the passenger and cargo markets, is more to do with the pattern of economic growth," says Pearce, pointing to the importance of the European and North American markets to generate demand for high-value goods transported by air. "Since 2008 it has been the emerging markets that have driven economic growth. Although air freight has been stagnant, world trade has continued to grow. Until we see European or North American economies growing, we are not going to see airfreight growing at any pace."
An improvement in cargo will certainly be welcome for many Asia-Pacific carriers, which is the most heavily exposed region to the airfreight market. This is a key factor behind slipping Asia-Pacific profitability. While IATA lifted profit expectations by $700 million to $3 billion in its December forecast, this is down on the $5.4 billion seen in 2011. Only a small upturn is seen for 2013, meaning it will be overtaken in absolute terms as the most profitable region - for the first time since 2009.
IATA sees larger carriers, aided by consolidation and joint ventures, faring better than their smaller peers.
"Economies of scale are helping larger airlines to cope much better with the difficult environment than small- and medium-sized carriers which continue to struggle," says Tyler.
While some of the bigger low-cost carriers have enjoyed strong profits during the period, Pearce dismisses suggestions IATA members are disproportionately struggling and notes there have been failures in the budget sector too. "If you look at the airlines that make money, its spread across the models," he says.
The collapse of Malev and Spanair last winter saw the sudden departure of two well-established names from the industry and Tyler acknowledges this winter will be similarly challenging. "That it's been a slightly better performance then they were expecting might help, but I don't think we should be surprised if we see one or two airlines fall by the wayside over the next two quarters," he says.
Alongside airline failures, the financial squeeze on banks has seen relatively low levels of start-ups entering the market. "The number of new airlines being formed has fallen sharply over the last two or three years," says Pearce. "Until the banks [in Europe] get back on more solid ground, I imagine its going to be quite difficult for start-up companies to raise funding."
Pearce concludes: "It's still a very risky environment. There are still more downside risks to the economy than upward risk. So it's an improving environment, but one that remains very fragile."