IATA trims 2014 profits forecast as fuel price bites back

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IATA has trimmed its full-year industry profits outlook for 2014 by $1 billion to $18.7 billion as higher fuel costs than anticipated countered an improved air cargo picture.

The airline association had in its last forecast in December anticipated a slight relenting in the oil price this year. But these hopes have been dashed by a steady climb in oil prices over the last month amid the uncertainty in the Ukraine.

While the collective profits forecast in its latest quarterly update is slightly down on the previous guidance, an $18.7 billion profit would mark an improvement on the $12.9 billion posted in 2013 and still represent one of the most profitable years for the industry.

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"Rather than being a substantial downgrade, it is probably better characterised as a tweak and the overall forecast is still very aligned to our December thinking," says IATA director general Tony Tyler. "Basically the fuel bill will be about $3 billion higher than we expected in December. And this will be partially offset by an increase in revenues of $2 billion—primarily due to stronger cargo markets."

IATA sees overall passenger revenues of $745 billion for the industry in 2014, an increase of more than 5%.

"The cargo side of the business is difficult but doing better than we had thought a few months ago," he says. "There are pressures from ‘on shoring’ of supply chains and protectionist measures which are slowing the growth in world trade and holding back the cargo side of the business. None-the-less we are seeing a cyclical upswing in demand.

"On the passenger side, we are still seeing growth, but the nature has shifted," says Tyler. "Up until last year, the story was one of strong emerging markets driving growth. Now the story is firmly about developed economies leading growth".

North American carriers are expected to generate nearly half of the total industry profits in 2014.