By Stephanie Jacob
Tony Tyler
The International Air Transport Association (IATA) said the airline industry will deliver a positive return on capital for the first time in 2015.
IATA said that the current cost of capital is just under 7%, and in 2015 the association expects airlines to generate a return of capital of 8.3% and of 8.6% in 2016.
IATA director-general and chief executive officer Tony Tyler said: “So we are finally, after years of destroying capital, delivering the minimal level of profitability that an investor would expect.”
However, he cautioned that while the results were good, they were not outstanding when compared to the profits that are generated in other industries in the global economy.
“Let’s keep that achievement in perspective. With nett profit margins still in the 5% range, there is little buffer. Achieving returns that barely exceed the cost of capital means that airlines are finally meeting the minimum expectations of their shareholders.
“For most other industries this is the norm and not the exception. And this is coming as expectations build that we are nearing the top of the cycle. On average airlines will still make less than US$10 per passenger carried. The industry growth is better described as fragile than sustainable,” said Tyler.
IATA expects that the industry to see a 5.1% increase in nett profit margin to US$36.3 billion (RM154.5 billion) in 2016. It also revised their 2015 nett profit upwards to US$33 billion from its initial US$29.3 billion forecast in June.
The performance will be driven by lower oil prices which will lower airline operational costs. The lower fuel prices will also lower consumer costs which will encourage more air travel.
This, however, will be moderated by the appreciation of the strong US dollar in several regions.
Demand for passenger travel in 2015 and 2016 is expected to be stronger in 2015, increasing by 6.7% and 6.9% respectively. Passenger travel revenue is expected to rise to US$533 billion in 2016.
This will drive industry revenue in 2016, which is expected to grow 0.9% next year.
Cargo demand growth is expected to moderate to 1.9% in 2015 before strengthening by 3% in 2016. Meanwhile, revenue for this segment is expected to decline slightly to US$50.8 billion.
The industry is expected to see record high load factors in 2015 of 80.6%, however, this will taper slightly to 80.4% in 2016, while capacity is expected to increase and exceed demand growth in 2016.
Meanwhile, yields are forecast to continue declining amid stiff competition. The cost of travel and shipping is expected to continue to decline with average yields for passengers declining by 5% and cargo by 5.5% in 2016.
However, the fall in yields in 2016 will be a deceleration from 2015, where passenger and cargo yields are expected to fall 11.7% and 18% respectively.
In terms of a regional outlook, IATA said that profits in the Asia-Pacific region are expected to grow from US$5.8 billion in 2015 to US$6.6 billion in 2016. Although Chinese economy has slowed, air travel is still expected to remain strong.
Airlines in the region are expected to more fully benefit from the lower fuel prices in 2016 as fuel hedges unwind. However, the region will be the most significantly hit by the expected slower cargo growth.
Profit per passenger is expected to be US$5.13, which is less than the US$21.44 which will be seen in North America and the US$8.80 in Europe.
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