Have Airlines Reached A Profit Peak?

Open Jaw

IATA says that airline profit expectations for the year ahead remain positive but have moderated somewhat in recent months. The intelligence comes from the Airline Business Confidence Index, a quarterly survey of airline CFOs conducted earlier this month.

The rate of expected improvement in profitability over the next 12 months has fallen over the past 2 quarters, suggesting that improvements in key drivers might have peaked earlier in 2015 and are currently stable or weakening.

Passenger traffic volumes were up during Q4 2015 compared to the year ago period. Despite weakness in some emerging market economies, passenger air travel continues to expand, supported by declines in the real cost of air transport.

The survey also suggests that growth in passenger volumes will continue in the coming months, but again, the share of respondents expecting an increase in passenger volumes in the year ahead has moderated compared to early 2015. It peaked at 79% in April 2015, and is now down to 55%.

This likely reflects concerns over weakness in the global business environment and emerging market economies.

Recent gains in profitability have been driven by strong growth in passenger volumes and falling input costs (material, fuel, labour and other overhead items). Respondents reported seeing a decline in input costs in Q4 compared to a year ago, and that trend is expected to continue in the year ahead.

Survey respondents indicated that passenger yields in Q4 remain down on the year-ago period, much the same as the trend throughout 2015. The January survey suggests there might be further declines in the year ahead.

You can read the full IATA quarterly Airline Business Confidence Index report here

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