has raised its industry forecast for 2015, now projecting net profits of $33
billion, up from the $29.3 billion forecast in June. 2016 is forecast to be
even better, with an average net profit margin of 5.1% being generated with
total net profits of $36.3 billion.
American airlines are expected to generate more than 50% of the industry’s
profits this year and next. IATA says this is as
a result of a strong U.S. economy, the appreciating greenback,
lower oil prices and a restructured industry.
airline association says the strengthening industry performance is being driven
by a combination of factors:
Lower oil prices
are giving airline profits a boost; however this is strongly moderated in many
markets by the appreciation of the USD.
Strong demand for
pax travel is making up for disappointing cargo demand growth.
performance in some key economies (including a faster than expected recovery in
the Eurozone) is outweighing the overall impact of slower growth in China and
the downturn in the Brazilian economy. Global GDP growth is expected to improve
to 2.7% in 2016 (up from 2.5% for 2015).
by airlines are illustrated by record high load factors (80.6% in 2015,
tapering slightly to 80.4% in 2016). Capacity is increasing and is expected to
move ahead of demand growth in 2016. Yields, however, continue to deteriorate
amid stiff competition.
is a good news story. The airline industry is delivering solid financial and
operational performance,” said Tony Tyler, IATA’s Director General & CEO.
“Passengers are benefiting from greater value than ever - with competitive
airfares and product investments. Environmental performance is improving. More
people and businesses are being connected to more places than ever. Employment
levels are rising. And finally our shareholders are beginning to enjoy normal
returns on their investments.”
both 2015 and 2016 the industry’s return on capital (8.3% and 8.6%
respectively) is expected to exceed the industry’s cost of capital (estimated
to be just under 7.0% in 2015 and 2016).
is an historic achievement for an industry that has been notorious for
destroying capital throughout its history. But let’s keep that achievement in
perspective,” Tyler said.
net profit margins still in the 5% range there is little buffer. Achieving
returns that barely exceed the cost of capital means that airlines are finally
meeting the minimum expectations of their shareholders. For most other
industries this is the norm and not the exception. And this is coming as
expectations build that we are nearing the top of the business cycle.”
added that the industry’s profitability is better described as ‘fragile’ than
says there are several indicators that improvements in airline profitability
are likely to slow.
1st is found in the cyclical nature of the airline business.
Historically the airline industry profitability cycle is 8-9 years from peak to
peak (or trough to trough). The low point of this cycle was 2009.
second is the anticipation of the economic impact of interest rates rising from
current exceptionally low levels. And lastly, airlines will soon have realized
the maximum positive impact of lower fuel prices with most of the higher-than-market
hedges due to unwind in 2016.
industry’s performance varies dramatically by region. North American carriers
are leading the industry’s performance and are expected to generate
considerably more than 1/2 the industry’s total profits in both 2015 ($19.4
billion) and 2016 ($19.2 billion). On a per passenger basis, profits of $21.44
in 2016 also place their performance at the top of the industry. This is as a
result of a strong US economy, the appreciating USD, lower oil prices and a
restructured industry. Capacity growth by North American airlines is expected
to accelerate from 3.7% in 2015 to 4.8% in 2016 on the strength of the US