Packed planes should help the world's airlines earn a $12.7 billion profit this year, as travel demand accelerates faster than the airlines add seats, according to a new prediction from a trade group.
If the estimate by the International Air Transport Association comes true, it would represent a 67 percent increase in airline profits from the $7.6 billion they earned last year. The new estimate is a 20 percent jump over IATA's estimate just three months ago.
IATA said that if its forecast holds, the global airline industry will have its third strongest year since 2001.
The biggest factor is full planes. Airline occupancy will rise to a record 80.3 percent this year, from an estimated 79.2 percent last year, the group said. Passenger traffic will rise 5.3 percent, but the number of seats to carry them will rise just 4.3 percent, the group said. This will be the second year in a row that airlines have added fewer seats than passengers.
Airlines have becoming increasingly sophisticated about predicting demand for each flight, allowing them to match supply and demand more closely by putting the right-sized plane on each route. U.S. and European airlines in particular have also become more cautious about adding new planes because of the recession in Europe and uncertainty about the recovery in the U.S.
Profits will also be helped by slightly lower oil prices. Jet fuel is one of the biggest expenses for airlines. The group said airlines have been adapting to tough economic conditions by cutting costs and adding fees for add-ons like food and checked baggage.
Commerce is one of the biggest drivers of airline traffic, and it's booming on routes linked to emerging economies, IATA said, even though trade among developed economies is in the doldrums because of uncertainty in Europe.
"This is a very tough business. The day-to-day challenges of keeping revenues ahead of costs remain monumental," said Tony Tyler, IATA's Director General and CEO. He said most airlines earn about $4 for every passenger carried.
Profit margins are expected to be 3.4 percent worldwide, the highest level since 2010. The biggest margins are expected for Asia-Pacific airlines at 5 percent, followed by 4.2 percent for airlines in North America, and 1.3 percent for those in Europe.
The group said freight revenue would rise 1.5 percent, after falling for the last two years. It expects freight yields to fall 2 percent this year after dropping 6.3 percent last year.