Air cargo picture brightens

The air cargo industry has made unexpected gains in recent months, but analysts are not predicting that the trend will continue into 2011.

The International Air Transport Association (IATA) revised its 2010 industry outlook and is now projecting a profit of $8.9 billion (up from the $2.5 billion forecast in June). In its first look into 2011, the Association estimates that profitability will drop to $5.3 billion.

“The industry recovery has been stronger and faster than anyone predicted,” said Giovanni Bisignani, IATA’s Director General and CEO in Geneva. “The $8.9 billion profit that we are projecting will start to recoup the nearly $50 billion lost over the previous decade.”

This observation was mirrored in comments made earlier this week at Oracle OpenWorld in San Francisco, where supply chain software developers said 2010 promises to be a better year for everyone in the global logistics industry.

In his address on key trends in logistics, James Taylor, vice president of software applications maker, CSC, noted that a rebound was in order.

And according to IATA, Asia-Pacific carriers are expected to post a $5.2 billion profit.

This is better than the $3 billion recorded during the previous peak in 2007 and double the previously forecasted $2.2 billion. The strong improvement is based on strong market growth and yield gains.  Renewed buoyancy in air freight markets has been particularly important for airlines in this region, where it can represent up to 40 percent of revenues. The 23.5 percent improvement in high volume intra-Asia premium traffic reflects another significant trend.

“But a reality check is in order,” cautioned Bisignani. “There are lingering doubts about how long this cyclical upturn will last.  Even if it is sustainable, the profit margins that we operate on are so razor thin that even increasing profits 3.5 times only generates a 1.6 percent margin. This is below the 2.5 percent margin of the previous cycle peak in 2007 and far below what it would take just to cover our cost of capital.”