IATA Raises 2017 Profit Forecast As It Meets In CUN
Bruce Parkinson, Open Jaw
IATA is holding its 73rd Annual General Meeting and World Air Transport Summit in Cancun, Mexico, with around 1,000 industry leaders and media in attendance.
Director General & CEO Alexandre de Juniac says the location is fitting.
“Cancun is a brilliant example of the transformative powers of air transport. Aviation fuels its robust, vibrant and growing tourism economy. And that’s part of a compelling story of aviation’s benefits. About 63 million jobs and $2.7 trillion in economic activity depend on aviation. Our discussions in Cancun will be about making aviation an even more successful industry and facilitator of global prosperity.”
The event opened with good news as IATA revised its 2017 industry profitability outlook upwards. Airlines are now expected to report a US$31.4 billion profit (up from the previously forecast US$29.8 billion) on revenues of US$743 billion (up from the previously forecast US$736 billion).
De Juniac told his aviation audience that demand for both the passenger and cargo business is stronger than expected. But he warned that while revenues are increasing, earnings are being squeezed by rising fuel, labour and maintenance expenses.
“Airlines are still well in the black and delivering earnings above their cost of capital. But, compared to last year, there is a dip in profitability," he said.
The association say industry profitability peaked at a historically high level in the first half of 2016 and has since been slowly declining. It says this is the result of margins being squeezed by unit costs rising faster than unit revenues.
In 2017 airlines are expected to retain a net profit of US$7.69 per passenger. That is down from US$9.13 in 2016 and US$10.08 in 2015. The average net profit margin stands at 4.2% (down from 4.9% in 2016).
"Airlines are defining a new epoch in industry profitability. For a third year in a row we expect returns that are above the cost of capital. But, with earnings of $7.69 per passenger, there is not much buffer. That’s why airlines must remain vigilant against any cost increases, including from taxes, labour and infrastructure," said de Juniac.
While overall industry performance is strong, there are significant regional variations. About half the industry profits are being generated in North America (US$15.4 billion). Carriers in Europe and Asia-Pacific will each add a US$7.4 billion profit to the industry total. Latin America and Middle East carriers are expected to earn US$800 million and US$400 million respectively, while airlines in Africa are expected to post a US$100 million loss.
IATA expects pax demand to grow by 7.4% over the course of 2017. That is the same rate as 2016 and 2.3 percentage points higher than previously forecast.
Stronger demand translates into an additional 275 million passengers (over 2016), which will bring the total number of passengers expected to fly this year to 4.1 billion.
If achieved, this would be the largest year-on-year growth in absolute passenger numbers ever recorded.
IATA says that what is most important for the industry financial performance is that this surge in expected demand takes traffic growth ahead of planned capacity growth. As a result, the average passenger load factor is expected to reach 80.6% (slightly ahead of the 80.3% achieved in 2016), helping to boost unit revenues.
Bruce Parkinson Editor-in-Chief
An observer and analyst of the Canadian and international travel industries for over 25 years.