Airline industry targets $ 6.7 bn profit in 2012

Updated 13 December 2012
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Airline industry targets $ 6.7 bn profit in 2012

GENEVA: Global airlines raised industry profit forecasts on the back of cost cuts and consolidation, but warned of a cocktail of risks including the euro zone crisis and US fiscal concerns.
The International Air Transport Association, which represents 240 airlines, said the industry would make a collective profit of $ 6.7 billion in 2012, up from a previous forecast of $ 4.1 billion.
In 2013, profits are expected to improve to $ 8.4 billion, up from a previous forecast of $ 7.5 billion, IATA said.
The improved outlook is driven mainly by belt-tightening and consolidation in North America in the face of what the airlines body described as a slowing world economy.
Carriers there are expected to make a total of $ 2.4 billion in 2012, up sharply from $ 1.7 billion last year, as airlines fly their planes with fewer empty seats and for more hours a day.
In Europe, airlines are no longer expected to post a combined loss this year but will merely break even, IATA said.
Asia continues to post sharp growth with profits of $ 3 billion expected this year despite concerns over a slowdown of growth in China and exposure to a weak cargo market.
Cargo markets, a barometer of world trade, are stagnant but may pick up in 2013 amid some signs of improved US demand for consumer goods that tend to go by air, IATA officials said.
Airline activity is traditionally seen as a bellwether for the wider economy, with business confidence translating rapidly into demand for premium seats and just under half of global trade by value travel ling by air.
“The US economy is growing but the threat of the fiscal cliff has not been eliminated,” said IATA Chief Economist Brian Pearce, referring to the potential impact of steep tax hikes and federal spending cuts budget cuts scheduled to take effect on Jan. 1.
Pearce said world economy as measured by global industrial production was slowing down. International air travel closely tracks industrial production, a broad-based measure of economic activity and one of the most timely, Pearce said.
Europe’s economic crisis is “far from solved,” he said, something that could increase pressure on airlines there to consolidate.

“There are opportunities for further consolidation in Europe,” said IATA Director General Tony Tyler, noting the presence of three clusters led by Air France-KLM, Lufthansa and British Airways-Iberia.
“Europe has a lot of airlines. One would expect those three groups would have a gravitational attraction to smaller carriers who find economic conditions too difficult to operate independently,” Tyler told reporters.
However a shortage of finance caused by the region’s economic crisis could slow the process down, he added.
Airlines claim the growing power of online reservation systems is also harming their ability to eke out extra profits.
One of their chief worries is that online travel agencies do not always make room for products designed to improve the average revenue per passenger, such as premium economy seating. Programming such web features costs money and takes time.
IATA, which sets standards and lobbies on behalf of airlines, announced it would develop ways to help passengers find the type of seats they were looking for and try to persuade online systems to use them. Such systems could also warn hotels and rental firms of delays or changes of plans, it said.


Starbucks blames slower China growth on drop in third-party delivery orders

Updated 8 min 28 sec ago
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Starbucks blames slower China growth on drop in third-party delivery orders

SINGAPORE/SHANGHAI: Starbucks Corp. has reported a sudden slowdown in China growth just weeks after trumpeting rapid expansion in the country, citing a drop-off in unapproved third-party delivery services whose bulk orders had been clogging up its cafes.
The US cafe chain on Tuesday same-store sales would be flat to slightly negative in its second-biggest market in April-June, versus 7 percent growth a year earlier. The announcement was followed by a 9 percent drop in Starbucks’ share price.
China has been a sweet spot for Starbucks for the past few years, as the country embraces cafes and opens up to drinking coffee over tea while growth saturates back home. Last month, the firm said it aimed to triple China revenue and double cafe numbers to 6,000 by 2022.
But on Tuesday, the company said new cafe openings were cannibalizing customer visits at other stores, as also happened in the United States. However, Starbucks particularly noted a decline in third-party firms — with whom it had no formal arrangements — that placed large orders for delivery to their own customers, often resulting in long in-store queues.
“I think it was driven by the government to want to stop having third parties do that because it was creating annoyances,” Chief Executive Kevin Johnson said on a call with analysts on Tuesday. He said the remedy was to seal a delivery partnership with a “large tech company” by the end of the year.
Reuters was unable to confirm any government measures on the matter.
Third-party “daigou” shopping agents in China offer services via delivery platforms such as Ele.me, backed by Alibaba Group Holding Ltd, and Meituan-Dianping, backed by Tencent Holdings Ltd. Restaurants and cafes can also have official accounts on such platforms, though Starbucks does not.
Mizuho Securities analyst Jeremy Scott in a research note said Starbucks would have been happy for the no-cost custom generated by third-party delivery services, but an official arrangement will likely push up costs.
“While the Street may be willing to forgive a tough May ... the soft comp (comparable store sales) in China is more disheartening given that management is hyper-focused on the market,” said Scott.
Starbucks also on Tuesday said it planned to close 150 cafes in the United States and open fewer locations in its financial year beginning in October, in response to competition that has seen new coffee chains, convenience stores and fast-food restaurants improve quality and cut prices.