New York, US (PANA) - The International Air Transport Association (IATA) has revised its 2016 financial outlook for global air transport industry profits upwards to US$39.4 billion from US$36.3 billion forecast in December 2015.
IATA, in a statement made available to PANA in New York on Friday, said: "That is expected to be generated on revenues of US$709 billion for an aggregate net profit margin of 5.6 per cent, and 2016 is expected to be the fifth consecutive year of improving aggregate industry profits."
It recalled that, in 2015, airlines generated a global aggregate profit of US$35.3 billion (re-stated from US$33.0 billion estimated in December 2015).
It noted that all regions around the world are making a contribution to the US$4.1 billion boost over 2015 profits with improved results, but there are stark regional differences in performance.
"Over half of the industry profits will be generated in North America (US$22.9 billion), while African airlines' carriers are forecast to continue generating an overall loss (US$0.5 billion).
Tony Tyler, IATA’s Director-General, stated: "Lower oil prices are certainly helping though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices."
"Performance, however, is being bolstered by the hard work of airlines. Load factors are at record levels. New value streams are increasing ancillary revenues, and joint ventures and other forms of cooperation are improving efficiency and increasing consumer choice while fostering robust competition.
"The result: consumers are getting a great deal and investors are finally beginning to see the rewards they deserve," he said, noting that, "on average, airlines will make US$10.42 for each passenger carried. "
Tyler stated: "For the second year in a row and only the second time in the airline industry’s history, the return on invested capital (9.8 per cent) will exceed the cost of capital (estimated to be 6.8 per cent).
He also said that "the job of shoring up resilience by repairing balance sheets is underway. We have had a few years of good profits and some airlines have started to pay down debt. It will, however, take a longer run of profits before balance sheets are returned to full health."
"Airlines are producing solid results even with some strong economic headwinds. It is an impressive performance and the mood of the industry is generally optimistic," the IATA chief stressed.
He noted that, one of the main forecast drivers is oil prices, saying: "The outlook is based on oil averaging US$45/barrel (Brent) over the course of the year which is significantly lower than the US$53.9 average price in 2015."
"The full impact of lower fuel prices is still being realized as hedges mature, and overall, fuel is expected to represent 19.7 per cent of the industry’s expenses, down from a recent high of 33.1 per cent in 2012-2013.
Tyler also said that passenger demand is another major driver, noting that passenger demand is robust with 6.2 per cent growth expected in 2016.
"That is, however, a slowdown from the 7.4 per cent growth recorded in 2015. Capacity is expected to grow slightly ahead of demand at 6.8 per cent, while load factors are expected to remain high at 80.0 per cent, but with a slight slip from 2015 (80.4 per cent).
"Yields are expected to fall by 7.0 per cent. Unit costs, driven by lower fuel prices, are expected to fall by 7.7 per cent, and overall the passenger business is projected to generate US$511 billion in revenues, down from US$518 billion in 2015.
On cargo, he said the business remains in the doldrums with 2.1 per cent growth in demand, stating that airlines are growing their fleets with long-haul wide-body aircraft to meet strong passenger demand growth.
"This adds cargo capacity to a flat air cargo market, and cargo yields are expected to fall by 8.0 per cent this year. Overall cargo is expected to generate US$49.6 billion in revenues, down from US$52.8 billion in 2015," the IATA chief said.
On regional diversity, he said North American carriers continue to deliver the industry’s strongest financial performance with an expected net profit of US$22.9 billion which is an improvement on the US$21.5 billion reported for 2015.
"Passenger capacity is expected to expand by 4.3 per cent in 2016, marginally outpacing an anticipated 4.0 per cent increase in demand, but load factors are forecast to remain well above break-even levels.
"Cash flow has been sufficient for airlines in this region to improve balance sheets significantly by repaying debt, and return cash to shareholders through dividends and share buy-backs.
Tyler said European airlines are expected to post a US$7.5 billion profit in 2016 (up from US$7.4 billion in 2015), and their passenger capacity is forecast to grow by 5.8 per cent, ahead of expected demand growth of 4.9 per cent.
He, however, said that terror incidents have had a dampening effect on demand in some key tourist destinations.
He also said airlines in Asia-Pacific are expected to post a US$7.8 billion profit in 2016, up from US$7.2 billion in 2015, and capacity is forecast to expand by 9.1 per cent in 2016, ahead of demand which is likely to grow by 8.5 per cent.
"Asia-Pacific carriers have a 40 per cent share of global air cargo markets. As a result, they continue to feel the brunt of stagnation in the aviation sector, which is holding back improvement in financial performance.
"Challenges include intense competition as the budget sector expands, restructuring in the Chinese economy and continuing infrastructure and cost difficulties in the Indian market," Tyler stated.
He also said that Middle East carriers are expected to post a US$1.6 billion profit, up slightly on the US$1.4 billion reported for 2015, and capacity is forecast to grow at 12.2 per cent, outpacing an expected 11.2 per cent expansion of demand.
"Efficient hubs continue to gain market share on connecting markets for the region’s major carriers, although local markets have been weakened by the impact of falling commodity revenues.
"Economic changes in the region’s oil economies are manifesting themselves in a spate of increases of charges and taxes which could dampen the region’s cost competitiveness," he said.
For Latin America, the IATA chief said airlines in the region are expected to see a US$100 million profit in 2016 after a US$1.5 billion loss in 2015, and demand is expected to grow by 4.2 per cent while carriers are forecast to add 3.7 per cent to capacity.
He, however, noted that two of the region’s major economies, namely Brazil and Venezuela, continue in a deep economic and political crisis.
He said African airlines are expected to post a US$500 million loss in 2016, a slight improvement on the US$700 million that the region’s carriers lost in 2015.
"Capacity growth in Africa is 5.3 per cent and it is anticipated to outpace demand growth of 4.5 per cent, while carriers in the region continue to confront a plethora of challenges including intense competition on long-haul routes, political barriers to growing intra-Africa traffic, high
costs and infrastructure deficiencies.
"In addition, many major economies in the continent have been hit hard by the collapse of commodity prices, and the impact that has had on revenues and the inflow of hard currencies. Also, unresolved foreign exchange crises are adding to the economic difficulties facing airlines in the African region," Tyler stated.
He said airlines’ environmental performance continues to improve, noting that the aviation industry is on target to meet its goal of improving fuel efficiency by an average of 1.5 per cent annually until 2020.
He further disclosed that current analysis showed that on average, the sector has improved fuel efficiency by 2.4 per cent per year since 2009, a figure that is expected to normalize in the coming years.
"Investments in new aircraft are a major driver of fuel efficiency improvements. In 2016, airlines are expected to take delivery of almost 1,900 new aircraft. About half are projected to replace less fuel-efficient older aircraft.
"The industry remains committed to achieving carbon-neutral growth from 2020. This is in addition to a 1.5 per cent average annual improvement in fuel-efficiency to 2020 and complements the long-term goal of cutting net emissions in half by 2050, compared with 2005 levels," the IATA chief said.
-0- PANA AA/VAO 3June2016