People, Travel

IATA Forecasts $33b Profit for Airlines

IATA Forecasts $33b Profit for AirlinesIATA Forecasts $33b Profit for Airlines

The world’s airlines will post record net profits of some $33 billion in 2015 — exceeding the cost of capital for the first time — while predicting a staggering $36.3 billion in profits in 2016, according to a revised forecast by the International Air Transport Association.

But despite the sixth consecutive year of airline profitability since the 2008-2009 recessions, the financials remain “fragile,” according to Tony Tyler, IATA director general.

“We should enjoy the benign trading conditions while they last but not get used to them,” he noted in remarks during IATA’s December 10 global media day in Geneva, industry news website AIN reported.

The $33 billion marks a nearly 66% increase from IATA’s profit forecast of a year ago, and a more than 12% jump from the $29.3 billion upward revision at the trade association’s annual general meeting in June. The prediction for 2016 suggests another record: $36.3 billion.

IATA chief economist Brian Pearce said the exceptional airline profits should be considered “normal.”

“In most industries, generating a return on capital at least equal to that cost is the minimum performance and is commonplace,” he said. The airline industry’s cost of capital runs at about 7%. Forecasts call for 2015 airline return on capital to amount to 8.3%, rising to 8.6% next year.

North America generates nearly 60% of the industry’s profits ($19.4 billion in 2015). Pearce attributes the performance not only to lower fuel prices but also improved passenger load factors, boosted by consolidation and restructuring in some US markets.

IATA expects European airline profits to rise from $6 billion to $9 billion this year and $8.5 billion next year, when hedged fuel purchases expire and enable lower fuel costs.

“The Middle East is split between strong Persian Gulf airlines, with successful long-haul super-connector operations, and regionally-focused airlines which are suffering from the impact of lower oil revenues and political conflict”, the report stated.

Tyler cautioned that “large parts of the industry are still struggling,” citing a negative result in Brazil from a previously expected $600 million profit to a $300 million loss in 2015.

 He said the Brazilian government is “unnecessarily making life difficult for themselves and in turn making it difficult for airlines” with policies resulting in the most expensive jet fuel prices in the region and recent changes in tax liability laws.