Will IATA’s optimism for 2014 hold?

iataTHE International Air Transport Association (IATA) rings in New Year cheer for its member airlines as it predicts record profits for the airline industry in 2014, revising upward the earlier forecast of US$16.4bn to US$19.7bn.

The association cites three reasons for its optimism: cost cutting by the airlines, cheaper jet fuel and rising demand for travel.

Cost cutting measures are really recovery measures more than the cause of good results if the experience of the industry is anything to go by in recent times. More importantly should be the issue of making this a daily discipline, in good times or bad, so as to sustain a well deserved profitability. Lauding it post-trauma can be deceptive, and may lead to complacency.

Cheaper jet fuel is of course good news, but the volatility of the product is not something that one can bet on. So it is as good as it is known, with no sign of a major political flare-up in the main oil producing regions in the offing. The cost of fuel has been an easy factor to blame for most airlines’ poor performances; if they continue to slide despite the good news, then they may finally get to where the real problem lies.

Demand for travel is swinging back, albeit not quite as fast as expected. All eyes are on Europe, where the trouble has been deep-seated for a long time. Yes, more people are travelling, but the real test will be one of yield. IATA said profit margins would be squeezed, noting much higher revenues of US$743bn generating an estimated profit of US$19.7bn next year compared to revenues of $579bn generating a profit of US$19.2bn in 2010.

IATA chief Tony Tyler said: “It is a tough environment in which to run an airline. Competition is intense and yields are deteriorating.”

Competition is a given. The good news is that despite its growing influence, the airlines according to IATA will turn in a record profitable year. Of course, if expectations are not met, this can always be cited as a reason.

But then, IATA is known to revise its forecast once too often. Can you blame it? Things change, you see.

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About Dingzi
Writer by passion, with professional expertise in aviation, customer service and creative writing. Aviation veteran, author, editor and management consultant. Besides commentary on business issues and life-interest topics, travel stories and book reviews, genres include fiction, poetry and plays. Nature lover who abhors cruelty of any form to animals, and a tireless traveler. Above all, a dreamer.

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