Consolidation expected to help airlines to post record profits

FRANKFURT, Germany — Airlines will post record earnings next year as a wave of consolidation and streamlining prompted by the global slump helps rein in capacity and support prices, the International Air Transport Association said.

Carriers will earn a combined $19.7 billion in net income in 2014, up from a September projection of $16.4 billion, with passenger numbers topping 3 billion for the first time this year and cargo markets boosted by a World Trade Organization agreement to smooth commerce, the industry group said Thursday.

“Fortunes are improving,” Chief Executive Officer Tony Tyler said in a briefing in Geneva, where the association is based.

“Airlines have shown that they can rise to the challenges of a difficult trading environment,” Tyler said. “Efficiencies gained through mergers and joint ventures are delivering value.”

Mergers among some of the world’s biggest airlines have eliminated thousands of excess jobs and integrated networks to pare route duplication, giving companies more control over ticket tariffs. Other carriers have also reined in capacity on weaker services while striking joint venture deals with former rivals to boost their exposure to the strongest markets.

North American carriers will be the most profitable and make the biggest contribution to global earnings, generating $5.8 billion this year and $8.3 billion in 2014, IATA said.

Consolidation in the world’s biggest airline market culminated this month in the formation of American Airlines Group Inc. from a merger of AMR Corp. and US Airways Group Inc. The deal, which created the world’s largest carrier, followed the earlier combinations of Delta Air Lines Inc. and Northwest Airlines Corp. and UAL Corp. with Continental Airlines Inc.

North American carriers can look forward to a good year as a stronger U.S. economy coincides with the benefits of a consolidated industry, association chief economist Brian Pearce said.

European airlines will post net income of $1.7 billion in 2013 and $3.2 billion next year, while Asia-Pacific operators should lift earnings to $3.2 billion this year and $4.1 billion — the smallest regional gain — in 2014, the association said.

“The North American airlines are clearly setting the benchmark for consolidation and capacity discipline and will reap the benefits,” said Oliver Sleath, an analyst at Barclays in London. “Europe is heading in the right direction, while Asia still looks vulnerable to overcapacity.”

Even with the benefits of cost cuts and mergers, global earnings next year will amount to only 2.6 percent of revenue — equal to $5.94 per passenger — a margin that would be wiped out without “product innovations” that are delivering $13 per head in ancillary revenues, Tyler said.

The cost of jet fuel will fall to an average $120.6 per barrel next year from $124 in 2013 as tensions related to Iranian nuclear development ease and North America adds supply, the association forecast. That’s still more than double the 2009 low.