IATA Raises 2017 Airline Profit Outlook

The International Air Transport Association has revised its global airline industry profit forecast for 2017 upwards by 5.4% to a net profit of $31.4 billion, citing a stronger than expected world economy.

While the new forecasted net profit for 2017 is higher than the $29.8 billion net profit projected by IATA in December 2016, it will still represent a dip from the industry’s 2016 net income of $34.8 billion, according to IATA, ATW Online reported.

Passenger traffic is now expected to grow 7.4% year-on-year (YOY) in 2017, which would be in line with the 2016 growth rate and be 2.3 percentage points higher than IATA previously forecast. The projected growth rate would mean an increase of 275 million passengers over 2016, which would be the largest year-on-year increase in absolute passengers ever recorded, IATA said.

Traffic growth is expected to outpace capacity growth and therefore boost unit revenue performance, IATA said.

IATA Director General and CEO Alexandre de Juniac told reporters on June 5 that airlines’ consistent profitability—2017 will mark the third consecutive year in which airline profits exceed the industry’s cost of capital—is the result of years of restructuring work.

“The industry has done a tremendous job in increasing its resilience to shocks,” he said. “It explains why we are making money for the eighth year in a row and are above the cost of capital for the third year in a row. It’s not a miracle. It’s not by chance. It’s because of hard work by the industry.”

IATA cautioned that fuel, labor and maintenance costs increased YOY in the first quarter and overall industry costs are expected to be $44 billion higher in 2017 compared to 2016. That will contribute to pushing down airlines’ per passenger profit to $7.69, down 15.8% from $9.13 in 2016 and 23.7% from $10.08 in 2015. The industry’s profit margin is expected to be 4.2% in 2017, down from 4.9% in 2016.

“There is not much buffer,” de Juniac said. “That’s why airlines must remain vigilant against any cost increases, including from taxes, labor and infrastructure.”

IATA did note that airlines’ financial performance in 2017 will vary by region, with North American airlines generating nearly half of the global net profit. But all regions, except Africa, are expected to be profitable in 2017.