Global airline industry projects eight consecutive years in the black

GENEVA - The global airline industry expects to post a record net profit of $35.6-billion in 2016, up from $35.3-billion in 2015, with this strong performance forecast to continue into 2017, albeit at a lower level. The projected net profit of $29.8-billion in 2017 would mean eight consecutive years in the black for the industry, despite oil prices averaging $100/bl or more for three of those years.

It would also be the third year in a row that the industry’s return on invested capital, at 7.9%, exceeded the cost of capital, at 6.9%. Speaking at the International Air Transport Association’s (Iata’s) global media day on Thursday, Iata director-general and CEO Alexandre de Juniac attributed this strong performance to the transformation the industry has undergone in recent years, which, he said, was “making airlines better businesses”.

The transformation, he said, had made the airline business more resilient to shocks, with airlines now retaining an average of $7.54 for every passenger transported. However, with oil prices forecast to increase to $55/bl in 2017, the association’s chief economist, Brian Pearce, said the demand stimulus from lower oil prices would taper off next year, slowing traffic growth to 5.1% from 5.9% this year.

Further, industry capacity expansion would slow to 5.6% from 6.2% in 2016. This growth rate would still outstrip the increase in demand, thus lowering the global passenger load factor to 77.8% from 80.2% in 2016.

However, the negative impact of a lower load factor would be offset to some extent by a strengthening in global economic growth to 2.5% from 2.2% in 2016. Of the $28.9-billion net profit forecast for 2017, Pearce said, North American carriers would account for the largest chunk – $18.1-billion – followed by carriers in the Asia-Pacific region ($6.3-billion), Europe ($5.6-billion), the Middle East ($300-million) and Latin America ($200-million).

African airlines were expected to deliver the weakest financial performance in 2017, with a net loss of $800-million, more or less the same as in 2016. For each passenger flown, this would amount to an average loss of $9.97.

The continent’s weak performance would be driven by regional conflicts and the impact of low commodity prices.

Meanwhile, Pearce said that there was some optimism regarding the prospects of the global cargo freight business in 2017, with a break in falling yields and a moderate uptick in demand of about 3.5% likely to result in record cargo volumes of 55.7-million tons, up from 53.9-million tons in 2016.

The cargo business’s revenues were expected to rise slightly to $49.4-billion. However, this would be lower than the $60-billion-a-year level experienced between 2010 and 2014. According to Pearce, Iata forecast airlines to transport four-million passengers in 2017.

Meanwhile, De Juniac expressed his disappointment at the astronomical taxes levied on airlines, noting that the global tax bill had ballooned to $123-billion, with the number of ticket taxes exceeding 230. Further, over 60% of countries had put visa barriers in the way of travel, while billions of dollars were being wasted in direct costs and lost productivity as a result of inefficient infrastructure.

“These are some of the hurdles which confront airlines. Our aim is to work in partnership to help governments better understand and fully maximise the social and economic benefits of efficient global air links," he concluded.

*Martin Zhuwakinyu attended  the Iata cargo media day as a guest of the association.