Airlines around the world are collectively expected to post US$31.4 billion in profits in calendar 2017 amid strong passenger demand and an improvement in the cargo sector.
The forecast, presented by International Air Transport Association (IATA) director general and chief executive Alexandre de Juniac at the industry body’s annual general meeting in Cancun, Mexico on Monday, was an improvement from the estimated profit of US$29.8 billion that was published in December 2016.
The result would be achieved on revenues totalling US$743 billion, representing a net profit margin of 4.2 per cent.
— IATA (@IATA) June 5, 2017
de Juniac said 2017 would be the third year in succession airlines would post returns above the cost of capital.
Further, he noted passengers were benefitting from modern fleets, an expanded global route network and more product choice.
“Strong demand is driving profitability,” de Juniac told delegates at the annual general meeting in his opening address.
“This includes air cargo, which has awakened from a six-year coma.”
The forecast result, if realised, would be down from collective net profit of US$34.8 billon estimated for calendar 2016.
IATA said industry level profitability peaked at a historically high level in the first half of 2016 and has since been slowly declining.
This was due to margins being crimped as unit costs rose ahead of unit revenues. Also, after tax profits were impacted by fuel hedging losses.
On a region-specific basis, IATA said North American carriers would continue to be the “powerhouse of industry profitability”, with profits of US$15.4 billion expected in 2017, compared with US$16.5 billion in the prior calendar year. North America represented more than half of the collective global profit.
Closer to home, IATA said Asia Pacific carriers were tipped to record net profits of US$7.4 billion, down from US$8.1 billion a year ago. The region’s performance was highlighted by the rebound in the cargo market.
“Cargo is playing a large role in the strength of the region’s carriers, which collectively account for about 40 per cent of air cargo shipments,” IATA said.
“Cargo revenues are rising for the first time in several years and this trend should be boosted by the restocking of retailers and industry in the initial stages of the economic upturn.”
On a negative note, IATA said trading conditions for Middle East carriers, including the likes of Emirates Airline, Etihad Airways and Qatar Airways, among others, had “sharply declined over the past six months”.
“Profitability and load factors are down significantly, as traffic and some business models have come under pressure,” IATA said.
“There is growing evidence that the ban on large electronic devices in the cabin and the uncertainty created around possible US travel bans is taking a toll on some key routes.
“Meanwhile, the region is struggling with increased infrastructure taxes/charges and air traffic congestion.”
Middle East carriers were expected to post profit of US$400 million in calendar 2016, barely a third of the US$1.1 billion profit in 2016.
Africa was the only region whose airlines were collectively forecast to be in the red in 2017 to the tune of a US$100 million loss.
de Juniac reiterated calls for governments and regulators to find an alternative solution to the electronics ban imposed by the United States and United Kingdom on flights from select countries with “no consultation with industry and little time to implement”.
And the bans were estimated to result in US$180 million in lost productivity, potentially rising to US$1.2 billion should the bans be extended to flights from Europe to the US.
“The measures themselves test the confidence of the industry and the public – confidence that is critical for the success of any security regime,” de Juniac said.
“We need to get security right. There is a clear duty to make sure that the measures are logical, effective and efficient. That is not the case with the current ban. And it must change.
“We must find alternatives to the ban. In the short-term, these include more intense screening at the gate and skills training.
“In the medium-term more advanced and faster explosive detection technology is the solution to evolving bomb threats.”