IATA reports 'record profits and pathetic yields'

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The world's airlines still constitute "a sick industry" despite a forecast of record profits for 2010, says the International Air Transport Association (IATA).

Overcapacity and high costs will lead profits to drop to $9.1 billion in 2011, predicts IATA director general Giovanni Bisignani. The association is forecasting profits of $15.1 billion for this year.

There has been a sharp increase in operating cash flow worldwide in 2010 compared with 2009's nadir, reports IATA. Yields have been recovering, and aircraft utilisation rates have gone up.

But with capacity returning, yields and load factors are levelling off, and the hope now is for stability, says Brian Pearce, IATA's chief economist.

Pearce estimates the rate of growth in demand for air travel at 10%. Business demand remains strong, and while leisure travel is weak in the West, it is robust in the East.

Leisure travel demand in Europe and North America is unlikely to make a real recovery for about two years yet, predicts Pearce.

In Asia, the rapid growth of cities and the expansion of the middle class are bringing strong growth, and this is forecasted to accelerate. IATA says the region will have 15 "mega-cities" by 2015, and "air travel is about connecting cities". The growing middle class in the area is expected to bring 360 million new passengers to the marketplace. By 2015, there will be 3.2 billion passenger journeys a year.

While 2010 profits of $15.1 billion would be the biggest ever in simple dollar terms, record margins are not predicted. Pearce says margins are still "pathetic" at 2.5%.

The forecast of $9.1 billion profits for 2011 is underpinned by an expectation that the oil price will rise to $84 per barrel.