Airlines accused of 'being embarrassed' of profits as earnings forecasts rise

The airline industry expects global profits to reach $18bn (£11bn) in 2014 – the highest ever in absolute terms. Photograph: Matthew Lloyd/Getty Images

Willie Walsh, the chief executive of British Airways' parent company,International Airlines Group, has accused airlines of "being embarrassed to make profits" and worrying that passengers would "bitch and moan" about high margins.

His comments came as the industry announced it expected global profits to reach $18bn (£11bn) in 2014. The figure is the highest ever in absolute terms and a steep rise on previous years despite persistently high fuel prices.

However, Tony Tyler, the director general of the International Air Transport Association (IATA), said at its AGM in Doha that the headline figures masked a daily struggle for airlines to break even.

The IATA has shaved $700m off its forecast due to concerns about China, but profits are up from $10.6bn in 2013, and almost three times the 2012 figure, as total spending on air travel rose to $746bn.

But Tyler said: "The brutal economic reality is that on revenues of $746bn we will earn an average net margin of just 2.4%. That's less than $6 per passenger.

"Some airlines will do better. But even if you're smart or lucky enough to be one of those, every day is still a struggle to keep revenues ahead of costs."

Walsh said airlines had a problem. He said: "We should not be embarrassed by saying we are trying to generate much higher profits than we are. This is the problem with our industry. A 2.4% margin – people would laugh at you in other industries."

He said other sectors made margins of 30-50%. "People buy their products and don't bitch and moan about it.

"We as the providers of this service almost feel embarrassed to talk about profitability and some of the people that buy our product don't think we should be allowed to make a profit. It's madness and it has to finish.

"You get people who will pay tens of thousands for a car or fortunes for watches. You don't hear people say: 'What was the margin on the watch I just bought?'"

The rise in profits has come despite fuel costs and relatively slow growth. Brian Pearce, the IATA's chief economist, said: "It's remarkable that the industry is generating any profit at all."

Airline fortunes closely mirror world trade and business confidence, which had been growing, he said. "In the first quarter of the year there has been a faltering of that upturn. We think it will resume but it shows we are still in fragile conditions."

Fuel costs have spurred the industry to achieve an extra 1.9% efficiency this year, but most airline chief executives agreed that fuel – at nearly $110 for a barrel of oil – was a major barrier to profit.

Ivan Chu of Cathay Pacific said: "It's a major part of your costs and something you can't control and very volatile, and the last few years the price has been very high."

Walsh agreed: "The issue is volatility. In 2001 a barrel of oil was $21.47 and we were unprofitable as an industry. Last year it was 32% of our costs and we were profitable."

Employees have borne the brunt of much cost-cutting. At International Airlines Group, new contracts at BA and Iberia have sliced salaries and introduced tougher conditions for crew and pilots.

Andrés Conesa, the chief executive of Aeroméxico, said labour had dropped from 35% to 22% of his airline's costs.

The chief executive of Qatar Airways, Akbar al-Baker – who said his close relationship with Walsh would bring another joint venture between the two airlines, but did not elaborate – said airlines should not recognise unions. "They are a pain in the ass. Everybody agrees but a lot of them would be afraid to say that I'm right."

Walsh said: "We have to live with the fact that we've got a trade union but are as determined as ever to run our business efficiently."

Intense competition from low-cost carriers has seen air fares fall in real terms by 3.5% this year, with the number of passengers worldwide reaching 3.3 billion.

Planes are flying fuller than ever before but lower fares mean that a higher load factor – or percentage of occupied seats – is needed to break even.

Tyler said consolidation had played a part in making the sector viable although national controls on foreign ownership had prevented many possible mergers.

However, he said: "By creatively working together – through alliances, joint ventures, franchising and domestic consolidation – we are seeing some significant results."

Walsh said: "The joint venture is a poor substitute but it's the only way in certain markets."

He said that while International Airlines Group had been looking at other airlines, to consolidate further, there was "not an opportunity at the moment".

Tyler warned that there were "strong headwinds" from rising infrastructure costs and inefficiencies in air traffic management, as well as the industry's perennial complaints about a heavy tax burden and costly regulation.

US airlines are making sustained recoveries after a wave of bankruptcies and consolidation. But David Barger, the chief executive of the US low-cost carrier JetBlue, said profits were going more to airports and financiers than airlines. "We're in the wrong part of the food chain."

Margins for airlines in Europe will be about half the global average, at 1.3%. But as Pearce pointed out, in the precarious world of airlines the average profit margin for the last 20 years is zero.