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Airlines expecting profits to jump to record highs in '14

GENEVA--The global airline industry expects its profits to jump to a record high next year, helped by falling jet fuel prices, rising travel demand and cost-cutting.

The International Air Transport Association said Thursday it forecasts a profit of US$19.7 billion — well above the US$12.9 billion expected this year and the US$7.4 billion made in 2012.

But the Geneva-based group, which represents 240 airlines, or 84 percent of total air traffic, noted margins are dropping. Next year's profit would come from projected revenues of US$743 billion. By contrast, 2010's US$19.2 billion profit was made on revenues of just US$579 billion.

Tony Tyler, director-general and CEO of IATA, said that the profit would amount to a little less than US$6 per passenger.

“To put that into perspective, the McDonald's down the road here in Geneva will make about the same amount of profit by selling four Happy Meals,” Tyler told reporters.

“It begs the question of whether US$6 per passenger is a reasonable reward for airlines if you consider the technology, skills and capital that is invested,” he said.

Passenger traffic has been expanding by about 5-6 percent and jet fuel prices remain high, but below their 2012 peak, Tyler said. The US$12.9 billion net profit the industry expects for 2013, based on US$708 billion in revenue, is itself a significant improvement on the group's earlier forecasts.

He attributed that to “a slight fall in the high price of oil” and the efficiencies of mergers and joint ventures, along with more success at cutting costs. More airlines, for example, are charging passengers separately for food, baggage and other items.

IATA's chief economist, Brian Pearce, expects these factors to continue to help the industry into 2014. Fuel prices are forecast to ease further due to new supply discoveries and the possible return to oil production of Iran.

North American airlines are expected to make the biggest profit next year — US$8.3 billion, up from US$5.8 billion this year — but see only a modest increase in demand for flight travel.

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