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Few industries have destroyed shareholder wealth so comprehensively and consistently as airlines. So there were more than a few raised eyebrows in Berlin when the International Air Transport Association (Iata) used its annual meeting to announced radically upgraded earnings forecasts for the global industry. Having previously expected $2.8bn (£1.9bn) of losses in 2010, it now thinks airlines will notch up $2.5bn of profit.
"The global economy is recovery from the depths of the financial crisis much more quickly than could have been anticipated. Airlines are benefiting from a traffic rebound that is pushing the industry into the black," said director general Giovanni Bisignani.
But the picture isn't as rosy as it first sounds. That $2.5bn profit is expected to be made on sales of $545bn, giving a miserable net margin of 0.5 per cent – well below the cost of capital, and a graphic illustration of the industry's lack of pricing power.
And the money is being made in Asia and North America, not Europe. Iata now expects Asian airlines to make $2.2bn and North American players to net $1.9bn, but has downgraded its forecast losses in Europe from $2.2bn to $2.8bn, citing “a stagnating economy, strikes, natural disasters and a currency crisis”.
British Airways may be less exposed to the euro's woes than continental flag-carriers, but it is even more vulnerable to industrial action. As the latest 15-day batch of strikes draws to a close, neither chief executive Willie Walsh nor Unite, the union representing most of BA's cabin crews, show any sign of budging from the positions they stated a month ago. That's frustrating for shareholders, since the original dispute about staffing levels has now largely been settled - the two sides are now bickering over the suspension of travel perks for employees who walked out.
The impact of the action was evident in airlines' May travel statistics. Budget operators easyJet and Ryanair posted year-on-year passenger traffic gains of 8 per cent and 17 per cent respectively as BA announced a 14 per cent decline. It also estimated the financial impact of the strike at £7m per day – suggesting the total profit impact for the 15 days was £105m.
Iata's forecasts are credible: without trade disputes and fierce competition from low-cost carriers, modest profits from flag-carriers are to be expected as demand recovers. But an improving global picture is no reason to buy sickly BA, which at 189p remains a sell.
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