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Reference – Bloomberg

Airline earnings will be 20 percent higher this year than forecast just three months ago as capacity cuts help pack planes to record levels, the International Air Transport Association said today.

Carriers are likely to generate net income of $12.7 billion in 2013, the industry group said today. That compares with a forecast of $10.6 billion issued on March 20, and represents a 67 percent gain on last year’s profit of $7.6 billion.

Airlines, set to carry more than 3 billion people for the first time this year, have resisted adding seats to chase market share. The strategy should lift their average load factor, or seat occupancy, to a record 80.3 percent, IATA Chief Executive Officer Tony Tyler said at the group’s annual meeting.

“Airlines have done a pretty good job of being profitable in very difficult circumstances” that include rising oil prices and slowing economic growth, Tyler told airline executives assembled in Cape Town today. Even with the improved outlook, the industry’s earnings will equal just 1.8 percent of its $711 billion in revenue, trailing a profitability high for the past decade of 3.3 percent set in 2010.

Carriers in all regions should post a profit this year, led by airlines in Asia with projected earnings of $4.6 billion and North America with $4.4 billion, IATA said.

Africa Trails

European airlines should accrue net income of $1.6 billion, with Middle Eastern operators generating $1.5 billion and those from Latin America about $600 million, according to the Geneva-and Montreal-based group, which represents 240 carriers accounting for 84 percent of global traffic. Africa is likely to remain the industry’s poorest-performing region, with companies there returning a profit of just $100 million.

U.S. and European airlines are leading moves to increase sales by charging for items such as checked bags and allocated seating. So-called ancillary revenue is set to account for 5 percent of the total in 2013, versus 0.5 percent in 2007, IATA projects.

An anticipated return on invested capital of about 4.8 percent for the year will trail the 7 percent to 8 percent average cost of capital required, giving cause for concern about the ability of airlines to fund new and more efficient plane models, IATA said.

“If airlines are to find the $4 trillion to $5 trillion needed to finance the projected fleet development over the next 20 years even more improvements are needed,” the association said in a statement.