IATA tips bumper profit for global airline industry in 2015

written by australianaviation.com.au | June 9, 2015
International Air Transport Association chief executive Tony Tyler at the 71st AGM in Miami.
International Air Transport Association chief executive Tony Tyler at the 71st AGM in Miami.

Airlines around the world are forecast to collectively earn $US29.3 billion in net profit in 2015 as lower fuel prices, economic growth and improved operating efficiencies boost the bottom line, the International Air Transport Association (IATA) says.

The forecast result is a significant improvement from the $US16.4 billion posted by the airline sector in 2014 and IATA chief executive Tony Tyler says many airlines are “winning the basic struggle to keep revenues ahead of costs”.

“For the first time in IATA’s records, the industry as a whole is earning its cost of capital,” Tyler told delegates at the opening session of the IATA annual general meeting in Miami on Monday (US time).

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“Today, we are safer, more efficient, more focused on sustainability and collectively more profitable than at any time in our history.”

IATA’s latest forecast for 2015 showed the world’s airlines would achieve a “hard-earned” net profit margin of four per cent – representing an average of US$8.27 profit for every passenger carried – on revenues of US$727 billion.

Tyler said the strongest driver of growing profitability was improved efficiency, as airlines better managed their operations and better matched capacity with demand, noting load factors were expected to reach a record high of 80.2 per cent in 2015.

“It shows how much progress has been made in fine tuning and focusing its business,” Tyler told reporters after his opening address.

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And while lower oil prices had helped reduce fuel costs for airlines, the benefits of the recent move was somewhat offset by the rising US dollar.

All regions were expected to be profitable in 2015, with airlines in North America tipped to generate more than half of the industry’s net profit. Tyler said North American carriers were “our industry’s most impressive turnaround story”.

Meawhile, Asia Pacific carriers, including the likes of Qantas and Air New Zealand, were forecast to post a combined net profit of US$5.1 billion.

IATA said the region had been disproportionately impacted by the “doldrums in the air cargo industry” given Asia Pacific airlines had about 40 per cent of the global air cargo market. Also, the economic slowdown in China has dampened profitability.

And the picture was similarly sluggish in Africa and Latin America, which have delivered weak returns for the past few years.

“The industry’s performance is far from uniform,” Tyler said.

“Some airlines are doing well. But many airlines are still facing huge challenges.”

IATA chief economist Brian Pearce cautioned the improvement in airline profitability was narrowly-based, with the bulk of the gains concentrated in the United States.

“Outside the US regional industry average net profit margins are three per cent or less – less than half the profitability achieved in the US,” Pearce said in a slide presentation.

“Further progress is required before the industry can be described as in full financial health.

“Even at the profit levels of the industry’s best year, margins remain thin and fragile,” IATA said.

And in a boon for consumers, Pearce said airfares could be set to fall in the period ahead as airlines began to take full advantage of the recent oil price declines.

“All the signs are that fuel prices are likely to stay low,” Pearce said.

“We are starting to see in the quarterly results now airlines benefiting from lower fuel costs but there has been a delay and there is still a delay for the full effects to come through because of hedging.

“Later this year we will start to see the full effects and it is an industry where costs typically end up being reflected in prices for consumers so I’d expect to see some further benefits for consumers as the year progresses.”

IATA, which has about 260 member airlines and represents 83 per cent of global air traffic, said airfares had fallen 64 per cent in real terms over the past two decades.

Passenger numbers were forecast to rise 6.7 per cent in 2015, compared with six per cent growth in the prior year.

Average profit per passenger by region (figure in US dollars)

North America: $18.12
Middle East: $9.61
Europe: $6.30
Asia-Pacific: $4.24
Latin America: $2.27
Africa: $1.59
(Source: IATA)

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