(Updates with forecast on freight in ninth paragraph)
Sept. 20 (Bloomberg) -- The International Air Transport Association raised its 2011 forecast for global airline profits by 73 percent because of stronger-than-expected demand in Europe and the Middle East.
Carriers will earn $6.9 billion of profits this year on sales of $594 billion, a margin of 1.2 percent, the group, whose members account for 93 percent of global passenger traffic, said in a statement today. That compares with a June forecast for earnings of $4 billion and last year’s profit of $16 billion.
The group raised its profit forecast for European carriers by $900 million from June as a weak euro boosts inbound tourism and exports. The Middle East forecast was increased by $700 million as travel withstands political instability, IATA said. Still, it predicted global profits will decline next year as economic growth stalls in debt-laden western nations.
“A long, slow struggle lies ahead,” Chief Executive Officer Tony Tyler told reporters on a conference call from Singapore today. “Margins are razor thin.”
The group expects carriers’ global profits to fall to $4.9 billion next year on sales of $632 billion.
While the 2011 forecast is an increase from June, the expected profit is still less than IATA’s March prediction that carriers would earn $8.6 billion. The group said its forecasts are based on global gross domestic product growth of 2.5 percent for this year and 2.4 percent for next year.
“Historically when the economic growth slips below 2 percent, the airline industry loses money and we are just above that threshold,” Tyler said. “Airlines put in a lot of effort for very poor returns.”
IATA expects passenger demand to rise 5.9 percent in 2011, revising its June prediction of 4.4 percent. Next year’s growth is seen at 4.6 percent.
The group slashed its freight growth forecast to 1.4 percent from 5.5 percent with airlines expected to carry 46.4 million metric tons of cargo this year. Growth will accelerate to 4.2 percent in 2012, according to IATA.
Asia-Pacific carriers will post a profit of $2.5 billion in 2011, up from a June forecast of $2.1 billion, as Japanese passenger traffic and cargo volumes recover from the March earthquake and tsunami, IATA said.
North American airline earnings will be $1.5 billion, compared with $1.2 billion predicted in June. The forecast for Latin America has risen six-fold to $600 million as commodity exports to China and North America fuel economic growth.
African carriers will likely break even this year, IATA said, revising an earlier forecast for a $100 million loss.
--Editors: Vipin Nair, Dave McCombs
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