GENEVA, Switz.–The International Air Transport Association (IATA) announced its airline industry outlook for 2016 which sees an average net profit margin of 5.1% being generated with total net profits of $36.3 billion.
IATA also announced a revision to its airline industry outlook for 2015 upwards to a net profit of $33 billion (4.6% net profit margin) from $29.3 billion forecast in June.
The strengthening industry performance is being driven by a combination of factors:
Lower oil prices (forecast to be $55/barrel Brent in 2015 and averaging a lower $51/barrel in 2016) are giving airline profits a boost; however this is strongly moderated in many markets by the appreciation of the US dollar.
Strong demand for passenger travel (+6.7% growth in 2015 and +6.9% in 2016) is making up for disappointing cargo demand growth (+1.9% in 2015; strengthening to 3.0% in 2016). Weak cargo performance reflects sluggish growth in trade.
Stronger economic 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).
Efficiency gains 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.
“This is a good news story. The airline industry is delivering solid financial and operational performance. 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,” said Tony Tyler, IATA’s Director General and CEO.
Demand for air cargo is expected to accelerate in 2016 to 3.0%, ahead of the 1.9% growth in 2015. This is slightly ahead of GDP growth which is expected to average 2.7% in 2016. Prior to the Global Financial Crisis this pace of economic growth would have generated much faster international trade and air cargo growth, but that pattern of growth appears to have stopped as companies bring supply chains closer to home. In total, the industry is expected to uplift 52.7 million tonnes of cargo in 2016, the release said.
Yields: The cost of travel and shipping is expected to continue to decline with average yields for passengers falling 5% and cargo falling by 5.5% in 2016. The pace of decline is a deceleration from 2015 when cargo yields are expected to fall by 18.0% and passenger yields by 11.7%. About 6.0 percentage points of the 2015 decline can be attributed to the appreciation of the US dollar and the impact this has when accounting for non-US dollar revenues.
North American carriers are leading the industry’s performance and are expected to generate considerably more than half the industry’s total profits in both 2015 ($19.4 billion) and 2016 ($19.2 billion). 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 economy.