Global Airlines Industry Seen Posting 'Record Profit' In 2016

Geneva: Global airlines industry is projected to see a "record profit" of $35.6 billion this year, but the earnings are expected to be lower at $29.8 billion in 2017 as conditions become difficult with higher oil prices, the International Air Transport Association (IATA) said on Thursday.

IATA, the global grouping that represents around 265 airlines, said the profitability outlook for this year has been revised downwards owing to "slower global GDP growth and rising costs".

In June 2016, the International Air Transport Association projected the airlines industry to rake in a profit of $39.4 billion. Still, this year's estimated profit number would be slightly higher than $35.3 billion seen in 2015.

"This year we expect airlines to earn $35.6 billion. It is a record profit, even if slightly less than our original expectation," IATA Director General and CEO Alexandre de Juniac said.

He was speaking at the Global Media Day organised by IATA here, where the grouping also came out with its latest state of the industry and economic outlook.

According to IATA, expected higher oil prices would have the biggest impact on profitability outlook for 2017.

Fuel is expected to account for 18.7 per cent of the industry's cost structure in 2017, which would be significantly below the recent peak of 33.2 per cent in 2012-13.

"Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8 billion. That is a very soft landing and safely in profitable territory," Mr de Juniac said.

The projected profit figure on the basis of forecast total revenues of $736 billion would represent a 4.1 per cent net profit margin.

"A net profit of $29.8 billion in 2017 will mean eight years in the black for the industry. And it will be the third year in row where the return on invested capital (7.9 per cent) will exceed the cost of capital (6.9 per cent)," Mr de Juniac said.

This year, oil prices averaged $44.6/barrel (Brent) and the same is expected to rise to $55 in 2017. "This will push jet fuel prices from $52.1/barrel (2016) to $64.9/barrel (2017)," IATA said.

Traffic growth is projected to slow down to 5.1 per cent in 2017 from 5.9 per cent this year as the demand stimulus from lower oil prices taper off next year, it added.

Airlines in the Asia-Pacific region are expected to generate a net profit of $6.3 billion in 2017, lower than $7.3 billion in 2016.

In 2017, airlines are expected to take delivery of some 1,700 new aircraft and around half of them would be replace older and less fuel-efficient aircraft.

"This would expand the global commercial fleet by 3.6 per cent to 28,700," IATA said.

Observing that governments do not make aviation's work easy, Mr de Juniac said the global tax bill has ballooned to $123 billion.

"Over 60 per cent of countries put visa barriers in the way of travel and the total number of ticket taxes exceeds 230," he noted.

Emphasising that the activities of the aviation industry must be sustainable, Mr de Juniac said it is a challenge for an industry that is carbon-intensive and growing to meet demand.