Another strong year for airline profits in 2017, IATA predicts
THE INTERNATIONAL Air Transport Association (IATA) has announced that it expects the global airline industry to make a net profit in 2017 of US$29.8 billion (Bt1.6 trillion).
On forecast total revenues of $736 billion, that represents a 4.1-per-cent net profit margin. This would be the third consecutive year (and the third year in the industry’s history) in which airlines would make a return on invested capital (7.9 per cent) that is above the weighted average cost of capital (6.9 per cent).
IATA revised slightly downward its outlook for 2016 airline-industry profitability to $35.6 billion (from the June projection of $39.4 billion) owing to slower global growth of gross domestic product and rising costs. This would still be the highest absolute profit generated by the airline industry and the highest net profit margin (5.1 per cent).
“Airlines continue to deliver strong results. This year we expect a record net profit of $35.6 billion. Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8 billion. That’s a very soft landing and safely in profitable territory,” said Alexandre de Juniac, IATA’s director-general and chief executive.
He added that these three years had the best performance in the industry’s history irrespective of the many uncertainties. Indeed, risks are abundant – political, economic and security among them. And controlling costs is still a constant battle in a hyper-competitive industry.
“We need to put this into perspective. Record profits for airlines means earning more than our cost of capital. For most other businesses that would be considered a normal level of return to investors. But three years of sustainable profits is a first for the airline industry.
“And after many years of hard work in restructuring and re-engineering the business the industry is also more resilient. We should also recognise that profits are not evenly spread, with the strongest performance concentrated in North America,” de Juniac said.
Next year is expected to be the eighth in a row of aggregate airline profitability, illustrating the resilience to shocks that have been built into the industry structure, the IATA said. On average, airlines will retain $7.54 for every passenger carried, it forecast.
It said expected higher oil prices would have the biggest impact on the outlook for 2017. In 2016 oil prices averaged $44.6 a barrel (Brent), and this is forecast to increase to $55 in 2017. This would push jet-fuel prices from $52.1 a barrel in 2016 to $64.90 next year.
Fuel is expected to account for 18.7 per cent of the industry’s cost structure in 2017, which is significantly below the recent peak of 33.2 per cent in 2012-2013.
IATA said demand stimulus from lower oil prices would taper off in 2017, slowing traffic growth to 5.1 per cent (from 5.9 per cent in 2016).
It said industry capacity expansion was also expected to slow to 5.6 per cent (down from 6.2 per cent in 2016). Capacity growth would still outstrip the increase in demand, thus lowering the global passenger load factor to 79.8 per cent (from 80.2 per cent in 2016).
IATA said the negative impact of a lower load factor was expected to be offset somewhat by a strengthening of global economic growth. World GDP was projected to expand by 2.5 per cent in 2017 (up from 2.2 per cent in 2016).
