IATA Boosts Profit Forecast; North America Leads The Way

Open Jaw

IATA has boosted its profit forecast for the aviation industry in 2015. The organization representing the vast majority of global airlines is now predicting a net profit of $29.3 billion.

On expected revenues of $727 billion, the industry would achieve a 4.0% net profit margin. The significant strengthening from the $16.4 billion net profit in 2014 reflects the net impact of several global factors, including stronger global economic prospects, record load factors, lower fuel prices and a major appreciation of the USD.

IATA says all regions are expected to see an improvement in profitability in 2015 compared with 2014. There are, however, stark differences in regional economies, which are also reflected in airline performance.

“The industry's fortunes are far from uniform. Many airlines still face huge challenges," said Tony Tyler, IATA's Director General & CEO.

Over 1/2 the global profit is expected to be generated by airlines based in North America ($15.7 billion). For North American airlines, the margin on earnings before interest and taxation (EBIT) is expected to exceed 12%, more than double that of the next best performing regions of Asia-Pacific and Europe.

“For the airline business, 2015 is turning out to be a positive year. Since the tragic events of September 2001, the global airline industry has transformed itself with major gains in efficiency. This is clearly evident in the expected record high passenger load factor of 80.2% for this year. The result is a hard-earned 4% average net profit margin," said Tyler.

While the numbers are clearly positive, Tyler says they should be kept in perspective. “Let's keep things in perspective. Apple, a single company, earned $13.6 billion in the 2nd quarter of this year. That's just under 1/2 the expected full-year profit of the entire airline industry. We don't begrudge anyone their business success. But it is important for our stakeholders, particularly governments, to understand that the business of providing global connectivity is still a very tough one," said Tyler.

Here are a few other highlights of IATA's forecast:

  • A significant milestone has been achieved with an expected return on invested capital (ROIC) of 7.5%. For the 1st time, the industry-level average ROIC will be in excess of its cost of capital, which has fallen to 6.8% largely due to lower bond yields.
  • The recent decline in fuel prices is a welcome development, though fuel still represents approximately 28% of the industry's operating cost structure. IATA says the full impact of the fall in fuel prices is being moderated by a 20% rise in the value of the USD over the past 12 months as well as by airline hedging policies, which have locked about 1/2 of the 2015 fuel supply at higher levels.
  • The passenger business is expected to grow 6.7% in 2015, an acceleration on the 6.0% growth recorded in 2014. Pax numbers are expected to top 3.5 billion for the 1st time in 2015. A focus on efficiency is seeing supply matched more closely than ever with demand and is expected to produce a record high load factor of 80.2%.
  • Carriers in North America are expected to generate a profit of $15.7 billion (up from $11.2 billion in 2014) for a net margin of 7.5%. On a per passenger basis this translates to an average profit of $18.12. Airlines have been able to use this profitability to invest in new fleet, pay down high levels of debt and deliver a normal return to investors through dividends and share buy-backs.
  • Aviation's global connectivity now spans 16,485 city pairs (2014), nearly double the number in 1994. Over that same period, IATA reports that average airfares have fallen around 64% (after inflation), which has been a major stimulus for trade, tourism and foreign direct investment associated with global supply chains.

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