The global airline industry expects to earn $35.6 billion during 2016, a record profit, though it is slightly less than the original expectation, said Alexandre de Juniac, Director General and Chief Executive Officer, International Air Transport Association (IATA), on Thursday. In June this year, IATA had estimated that the global industry will report a profit of $39.4 billion.
But despite the dip in profitability, good news for the global industry will continue in the next year, too. de Juniac indicated that the global airline industry expects to report a net profit of $29.8 billion during 2017, being eight years in the black for the industry.
“This (2017) will be the third year in a row where the return on invested capital (7.9 per cent) will exceed the cost of capital (6.9 per cent)… This is the best performance in the industry’s history, irrespective of the many uncertainties we face,” de Juniac said in his address at the start of the Global Media Day event here.
Brian Pearce, Chief Economist, IATA, pointed out that the conditions are expected to be tougher next year with higher fuel costs and a still relatively weak global economy. “But we still forecast that the industry will generate an above-cost of capital of 7.9 per cent. In net profit terms, that’s just a fraction under-$30 billion,” Pearce said.
The forecast for 2017 is based on Brent crude oil prices being at around $55 a barrel, a rise of $10 a barrel since this year. “This (Brent oil price being at around $55 a barrel despite the oil producers freezing production) is because the market is still over supplied,” Pearce said.
Another reason for the positive outlook for 2017 is also based on “slightly stronger” economic activity and confidence in many parts of the globe, which will help offset the slight increase in the price of Brent crude next year.
“We are expecting to see the global industry carry a little less than 4 billion passengers during 2017 and creating value for investors next year,” Pearce said.
The Director General added that the airlines are in better shape to remain profitable while facing the many challenges, pointing that as the reason “we see a safe soft landing in profitable territory for 2017.”
During 2017, the strongest financial performance is likely to be delivered by airlines in North America with net post-tax profits at $18.1 billion, slightly down from $20.3 billion expected in 2016; while the carriers in the Asia-Pacific region are expected to generate a net profit of $6.3 billion, down from $7.3 billion in the previous year. The net margin for the North America carriers is expected to be strongest at 8.5 per cent with an average profit of $19.58 per passenger; while for carriers in the Asia-Pacific region, with net margins of 2.9 per cent on a per passenger basis, profits are anticipated to be $4.44. Indian carriers are included in the Asia-Pacific region.
This correspondent is in Geneva at the invitation of IATA