THE International Air Transport Association (IATA) has predicted 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 $19.9 billion (up from the $18.0 billion projected in June). This looks set to rise to $25 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. 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 $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 $7.08 in 2015. That is up on the $6.02 earned in 2014 and more than double the $3.38 earnings per passenger achieved in 2013.2015 FORECAST DRIVERSOil prices: Oil prices have fallen substantially in recent months and this is expected to continue into 2015 with the full-year average price expected to be $85/barrel (Brent). If that assumption is correct, it would be the first time that the average oil price has fallen below $100/barrel since 2010 (when oil averaged $79.4/barrel). Fuel prices: Jet fuel prices are expected to average at $99.9/barrel in 2015 for a total fuel spend of $192 billion which represents 26 per cent of total industry costs. It is important to note that the impact of lower fuel prices will be realised with a time lag, due to forward fuel-buying practices. Improving fuel efficiency continues to be a priority for airlines. Fuel efficiency is estimated to have improved by 1.8 per cent in 2014 and a further improvement is expected in 2015. Fuel efficiency improvements could be accelerated by reducing the 5 per cent of wasted fuel burn as a result of airspace and airport inefficiencies. Economic growth: Global GDP is expected to grow by 3.2 per cent in 2015, up from 2.6 per cent in 2014. This will be the first time that global GDP has broken over 3 per cent since 2010 (when global GDP grew by 4.1 per cent in a post-recession bounce back), this time boosted by the fall in oil prices.Passenger trends: Passenger traffic is expected to grow by 7 per cent in 2015, which is well-above the 5.5 per cent growth trend of the past two decades. Capacity growth is expected to outstrip this slightly at 7.3 per cent, pushing the passenger load factor to 79.6 per cent (slightly down on the 79.9 per cent expected for 2014). The fall in the price of fuel is expected to lead to cheaper airfares for consumers. REGIONAL TRENDSAll regions are expected to report improved net profitability in 2015 over 2014. However, there are stark differences in profitability among the regions. Current and forward-looking industry financial assessments should not be taken as reflecting the performance of individual airlines, which can differ significantly.While the strongest financial performance by far is being delivered by airlines in North America, European airlines continue to struggle as evidenced by the highest breakeven load factors among all regions (64.7 per cent). European airlines compete vigorously in the continent’s open aviation area. But they are hampered by high regulatory costs, infrastructure inefficiency and onerous taxation. Airlines in the Asia-Pacific region are expected to achieve a net profit of $5 billion in 2015 (up from $3.5 billion in 2014) for a 2.2 per cent net profit margin. Middle East airlines have one of the lowest breakeven load factors (58.6 per cent). Average yields are low but unit costs are even lower, partly driven by the strength of capacity growth. Passenger capacity is expected to expand by 15.6 per cent in 2015 (up from 11.4 per cent in 2014). Post-tax net profits are expected to grow to $1.6 billion in 2015 (up from $1.1 billion in 2014). This represents a profit of $7.98 per passenger and a net profit margin of 2.5 per cent. Link to the IATA partners agent coalition: