NEWSWEEK On-shoring rise troubles growth A


irfreight volumes are five per cent above a year ago, but have not increased as expected because production has been on-shored, according to the International Air


Transport Association (IATA) cargo eChart- book fourth quarter 2014. It says demand for air cargo has been mixed


with volumes recovering after a weak start to 2014, mostly because of goods moving to and from Asia. It says Chinese consumer confidence is stable and US optimism about the economic outlook is the highest since before the 2008 financial crisis and recession. European consum- ers have become more pessimistic over recent months due to the ongoing Russia-Ukraine con- flict. IATA also says the global outlook for 2015 is stronger than 2014 because notable improve- ments are anticipated in the US, Latin America, the Middle East and North Africa. IATA says: “Business confidence continues to signal expan- sion in manufacturing activity, but lack of further


improvements over recent months means levels are now below those of a year ago.” The total load factor has remained weak throughout the year, in IATA’s October 2014 financial monitor it says the year-to-date load factor is 45.2 per cent. In October, the load factor was 47 per cent. IATA says capacity will continue to grow and that there is an, “expected six per cent increase in 2015 of deliveries of twin-aisle aircraft with bellyhold capacity.” Yields have weakened again after stability during the middle of the year and are now down two per cent on mid 2011. Jet fuel prices are down 36 per cent since the


mid-year peak of over $120 dollars per barrel, which IATA says should help reduce airline costs. It says this is because of weak demand from Europe and increases in supply from the US.


Airfreight rates are stable, but have seen no


improvement over a year ago though demand for moving Asian goods by air has stayed the same.


Boeing predicts better 2015 financing


will come mainly from capital markets, cash and commercial bank debt, while export credit agency exposure continues to wane. “The strength we’re seeing in aircraft fi- nance is largely the result of a healthy and balanced global demand for new aircraft,” says Boeing Capital’s vice president and general manager of aircraft financial ser- vices, Tim Myers.


STRONG growth in air cargo demand may be a sign of the return of airfreight traffic to historical levels, according to the seventh annual Current Aircraft Finance Market Out- look published by Boeing last week. “Complementing the strong passenger market is growth in air cargo demand,” the outlook says. “We continue to see growth in this sector’s volumes, which may signal the anticipated return of air cargo traffic growth to historical levels.”


Boeing predicts that the world’s airlines and lessors will continue to benefit from increased competition among lenders and historically low interest rates as manufac- turers deliver $124 billion in new aircraft during 2015.


In its outlook, Boeing says that decades of predictable, attractive returns have led to “unprecedented” diversity, efficiency and volume of financing for commercial aircraft. According to Boeing, next year’s financing


This is being driven by anticipated growth in traffic, airline profitability and the contin- uation of a replacement cycle to improve the fuel and performance efficiency of the global fleet.


“The stable performance of aircraft fi- nance and investment over the past few years, particularly through the global finan- cial crisis, is attracting new participants and is driving diversification both geographical- ly and in terms of funding sources. That’s good news for airlines and lessors who will continue to have access to highly efficient financing,” he explains. Boeing forecasts strong demand for new commercial airplanes in 2015, resulting in about $124 billion in deliveries across the industry.


“That’s doubled since 2010,” adds Myers. “And while we expect to see the growth moderate over the next few years, we’re still expecting annual aircraft delivery finance requirements to be around $156 billion in 2019.”


Oil to aid profit, weak margins remain


AIRLINES are expected to make a net profit globally of $25 billion in 2015, helped by declining oil prices, but profit margins re- main weak, according to the International Air Transport Association’s (IATA) Econom- ic Performance of the Air Transport Industry report.


Oil prices are expected to average $85 a barrel throughout 2015, which, if correct, will be the first year it has been below $100 per barrel since 2010. IATA expects jet fuel prices to average $99.9 dollars a barrel in 2015, representing 26 per cent of industry costs, totalling $192 billion. Cargo volumes are expected to grow by 4.5 per cent in 2015, slightly above the predicted 4.3 per cent growth in 2014. IATA director general and chief exec- utive officer, Tony Tyler, says: “While we see airlines making $25 billion in 2015, it is important to remember that this is still just a 3.2 per cent net profit margin. A 3.2 per cent net profit margin does not leave much room for a deterioration in the exter- nal environment before profits are hit.” Tyler also says he is impressed how airlines have coped with the increases in oil prices. “In 2004 we were all wondering how airlines could cope with an oil price that was ap-


proaching $40 a barrel ... Projections for next year see oil averaging at $85 a barrel. That’s more than double the 2004 price, yet somehow it now seems cheap!” Profitability is expected to vary great- ly from region to region, with some areas seeing weak margins and others barely breaking even. North America is expected to make net post-tax profits of $13.2 billion in 2015, a margin of six per cent. Asia-Pa- cific is expected to see the next highest profit of $5 billion, a margin of 2.2 per cent. Europe is expected to see net profits of


$4 billion in 2015, with a margin of 1.8 per cent. The Middle East is expected to make net profits of $1.6 billion in 2015, a margin of 2.5 per cent. Latin America is predicted to make net profits of $1 billion, a margin of 2.6 per cent. Africa is expected to bare- ly break even, with profits of $200 million, IATA says the continent is slowly improving. Tyler warns the profit margins are not evenly distributed. “Some airlines are making sus- tainable returns and other are struggling. Over half of the profits, some $13.2 billion, are expected to be generated by airlines in North America. In contrast, the European industry is of a similar size, but will make only $4 billion.”


4


ACW 15 DECEMBER 2014


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12