Airline outlook: Less turbulence, more profit

The financial performance of Chinese airlines improved in the third quarter as passenger traffic rose and fuel prices declined.

While Air China's profit of 4.48 billion yuan ($719 million) from operations in the third quarter was a drop of 17 percent compared with the same period in 2011, the decline was much lower than the first half of the year, when revenues fell some 74 percent, according to a report released by the carrier on Oct 26.

The revenue decline posted by China Southern Airlines slowed from an 83.7 percent drop in the first half to 29.2 percent in the third quarter, the airline said on Oct 28.

"China's domestic travel resurgence continued with an 11.4 percent rise in demand (in September) over a year ago," said the International Air Transport Association.

This improvement is in line with recent data on industrial production and consumer spending, all of which show increases, IATA said in its report.

Statistics from the Civil Aviation Administration of China show that the passenger and air freight transport totaled almost 5.4 billion ton-kilometers in September, more than the 5 billion reported in the first six months of 2012.

Airlines usually register stronger figures in the second half due to the summer vacations and end-year busy seasons, said Li Xiaoji, a professor of the Economic and Management School at the Tianjin-based China Aviation University.

IATA is optimistic about China's aviation industry, although profits are expected to fall this year due to a slowdown in national economic growth.

"China's economy is still healthy compared with the rest of the world," Tony Tyler, IATA's director general and CEO, said at IATA annual general meeting in Beijing in June.

The Chinese government is also taking some proactive approaches to promote the industry, he added.

According to the 12th Five-Year Plan (2011-2015) for the aviation industry, 70 new airports are planned to open between 2011 and 2015.

"The scale of aviation infrastructure development that we see here is unprecedented," Tyler said.

The global passenger market also performed well recently, leading IATA to revise its annual forecast for growth to 5.3 percent, up 0.5 percentage points from the outlook in June.

IATA also revised its forecast upwards on its 2012 global aviation outlook in Oct and voiced optimism about 2013.

Airline income rose to $4.1 billion in October from $3 billion in June, while the industry's net profit margins increased to 0.6 percent from 0.5 percent.

The association forecasts that the increasing price of jet fuel will cost the industry an additional $1 billion, bringing the price tag to $208 billion for the year.

But "it means that airlines are keeping their heads above water better than we thought", said Tony Tyler, IATA's director general and CEO, adding that they perform better in a difficult environment.

"The airlines have restruc-tured their businesses," he noted.

To cope with rising fuel costs, new fleets are needed to make airlines more efficient.

In September, United Airlines, the world's biggest airline by fleet size, took delivery on its first 50 Boeing 787 Dreamliner aircraft, the newest product of Boeing, in September.

With a fleet of nearly 700 mainline aircraft, the airline has more than 270 new planes on order through 2022, including 25 Airbus A350XWBs, 100 Boeing 737 Max and 50 Boeing 737-900ER aircraft.

Fleet management is an-other way for airlines to improve profitability.

China Southern used its A380 aircraft on international routes beginning in October, which increased the aircraft's use to 11.3 hours a day from five to six hours daily on do-mestic routes.

The super jumbos, which were used on the route between Guangzhou and Los Angeles, had average load factor of more than 80 percent in October.