The International Air Transport Association (IATA) announced an outlook for improved industry profitability in its Economic Performance of the Air Transport Industry report. Airlines are expected to post a collective global net profit in 2014 of some US$19.9 billion (up from the US$18.0 billion projected in June). This looks set to rise to US$25.0 billion in 2015.
Lower oil prices and stronger worldwide GDP growth are the main drivers behind the improved profitability.
Consumers will benefit substantially from the stronger industry performance as lower industry costs and efficiencies are passed through. The airline industry is highly competitive. After adjusting for inflation, average return airfares (excluding taxes and surcharges) are expected to fall by some 5.1 per cent on 2014 levels and cargo rates are expected to fall by a slightly bigger 5.8 per cent.
The expected US$25 billion net post-tax profit represents a 3.2 per cent margin. On a per passenger basis, airlines will make a net profit of US$7.08 in 2015. That is up on the US$6.02 earned in 2014 and more than double the US$3.38 earnings per passenger achieved in 2013.
The return on invested capital (ROIC) is expected to grow to 7.0 per cent. This is a substantial improvement on the 6.1 per cent ROIC expected to be achieved in 2014.This is still 0.8 percentage points below the 7.8 per cent weighted average cost of capital (WACC), so there is still some ground to cover before achieving sustainable margins.
“The industry outlook is improving. The global economy continues to recover and the fall in oil prices should strengthen the upturn next year. While we see airlines making US$25 billion in 2015, it is important to remember that this is still just a 3.2 per cent net profit margin. The industry story is largely positive, but there are a number of risks in today’s global environment—political unrest, conflicts, and some weak regional economies- among them. And a 3.2 per cent net profit margin does not leave much room for a deterioration in the external environment before profits are hit,” said Tony Tyler, IATA’s director general and CEO.
“Stronger industry performance is good news for all. It’s a highly competitive industry and consumers—travelers as well as shippers—will see lower costs in 2015 as the impact of lower oil prices kick in. Airline investors will see ROIC move closer to the WACC. And a healthy air transport sector will help governments in their overall objective to stimulate the economic growth needed to put the impact of the global financial crisis behind them at last,” said Tyler.
