Global airlines to post $33 billion profits

Dubai - Middle East carriers are poised to record $1.7b profits in 2016, says IATA

The Middle East airlines are poised to post profits of $1.4 billion in 2015 as across the world airlines are set to record a collective net profit of $33 billion for the year, upwards from an earlier projection of $29.3 billion, IATA said citing cheaper fuel, robust passenger demand as well as the stronger economic performance in the US and Europe as reasons for the profit surge.
In 2016, the Middle East is expected to post a $1.7 billion net profit, the aviation trade association said. "This is a good news story. The airline industry is delivering solid financial and operational performance. Finally our shareholders are beginning to enjoy normal returns on their investments," said Tony Tyler, chief of IATA.
IATA chief economist Brian Pearce gave the latest financial forecasts for the airline industry, and said forecast another record net profit of $36.3 billion in 2016.
The overall picture is positive, with the 2015 collective net profit outlook further increased from $29.3 billion forecast in June to the $33 billion now forecast.
"The falling oil prices and strong air travel are going to be the two major factors driving the profitability next year," said Pearce.
Largely calling it good news for the aviation industry, IATA said the airline industry will reap $36.3 billion in total net profits in 2016 - averaging a net profit margin of 5.1 per cent. "Our outlook for this year has improved to a 33 billion US dollars net profit," said Tyler.
The 90 per cent jump from the record $17.3 billion in profit the industry earned last year is due in part to the sharp reduction in fuel costs as global oil prices have plunged by over 60 per cent from highs hit last year. This year, Brent oil prices are expected to average $55 per barrel, and ease to $51 per barrel in 2016.
The industry expects to have winds at its tail in 2016, with IATA forecasting profits to rise to $36.3 billion, Tyler said.
While the figures are big, the net profit margin is still only 4.6 per cent this year for the industry, after years of losses.
But it is not only shareholders, but also customers who are benefitting as airfares have become more competitive and airlines invested in new aircraft, said the IATA.
North American carriers account for more than half of the global net profit forecast for both 2015 and 2016, while carriers in Latin America and Africa are expected to post collective small net losses.
North American carriers are forecast to post a net profit of $19.4 billion for 2015 and $19.2 billion for 2016. Pearce said the main reason for the slight drop in year-over-year profitability was that the financial benefit of fuel price drops will have been absorbed by 2016, but their predicted net margin of 9.5 per cent for each year will be the best performance by far relative to other world regions. Overall, the global net margin of airlines is forecast to be 4.6 per cent in 2015 and 5.1 per cent in 2016.
"North American airlines are well out ahead of the pack," Pearce said. "We are seeing some improvement in Europe, but improvements are not widespread. There are backward steps in Latin America and Africa especially."
Latin America has become a major region of concern. A deepening economic crisis in Brazil, anti-airline regulation coupled with heavy taxes and fees in many countries - especially Argentina and Venezuela - have made the region one of the world's most difficult and most expensive for airlines to operate in, IATA regional VP, Americas, Peter Cerda noted. As a result, the region is expected to end 2015 with a net loss of $300 million, recovering to a $400 million profit in 2016.
Another concern, especially for Europe and which could affect the numbers next year, is whether the terrorist attacks in Paris could prompt a drop in tourist travel.
Pearce acknowledged industry concern and said there had been a "sharp fall" in travel, particularly from Asia, after the Paris attacks in November. But he added that previous experience with events such as the 9/11 attacks had shown that air travel does rebound.
By region, IATA's forecast puts North America 2015 net profit at $19.4 billion and 2106 net profit at $19.2 billion; Europe at $6.9 billion and $8.5 billion; Asia-Pacific at $5.8 billion and $6.6 billion; Middle East at $1.4 billion and $1.7 billion; Latin America at -$0.3 billion and -$0.4 billion; and Africa at -$0.3 billion -$0.1 billion.
"The industry's results are good, but they are not outstanding when compared to the profits that are generated in other parts of the global economy," Tyler noted. "There is no 'easy money' profitability that is sustainable for any business. The airline industry has strengthened its profitability to an ordinary, not an extraordinary level. The core of that success is primarily in North America. Large parts of the industry are still struggling."
- issacjohn@khaleejtimes.com

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