Smooth skies on the horizon

Airlines business confidence showed a remarkable improvement in January, according to the latest quarterly research published by the International Air Transport Association, a trade association whose members account for more than 84 percent of the overall global air traffic.

Despite global economic weakness, both passenger and cargo volumes showed a steady pick up over the past three months compared to a year ago, chief financial officers and heads of 240 carriers and cargo companies have reported.

A majority, or 56.3 percent of respondents, expected improved profitability, after financial performance bottomed out at the beginning of 2012.

Traffic volumes in the passenger business improved during the fourth quarter, according to survey responses about the past three months.

Expectations for growth over the coming year improved further, as 71.4 percent of respondents now expect improved demand growth in 2013, compared to 52.9 percent in the October survey.

Meanwhile, around 55 percent of the respondents said they are confident of more increases in air cargo in 2013, which is consistent with expectations of improved world trade growth.

In 2013, several crude oil producers, including South Sudan, Yemen, Colombia and China, are expected to add to oil stocks, which may help contain upward pressure on jet fuel prices, the report said.

Nearly 47 percent of the companies have indicated that yields increased from a year ago, while in the previous survey, 35 percent said so.

The past year saw a net profit margin of just 1 percent for the air transportation sector. That's precisely why Tony Tyler, director-general of the IATA, has called it "a fragile industry".

He cited rising fuel expenditure as the main reason for the current malaise. Fuel now accounts for more than 30 percent of average operating costs, while a decade ago, it was just 13 percent. "A further price spike could easily push the industry into losses," he warned.

Airlines are similarly vulnerable to economic cycles. Historically, the airline industry has produced a collective loss when GDP growth falls below 2 percent.

Political instability continues in the eurozone as it grapples with the debt crisis. Many countries have already gone into recession.

"If others follow, the ripple effects would most certainly be felt in all global markets," he said, forecasting that emerging markets would see a more dynamic growth, especially in domestic flights.