IATA Foresees Strong Airline Performance in 2016 With 3.8 Billion Pax to Travel
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APEX Insight: IATA’s Industry Outlook figures paint a rosy picture for airlines in 2016, but airline profitability is a delicate balance of costs and operational efficiencies. Airlines have learned better business practices and the results show in their financials.
The Industry Outlook for 2016 for aviation, as presented by Tony Tyler, director General and CEO, and Brian Pearce, chief economist, of the International Air Transport Association (IATA) is promising. The association predicts an average net profit margin of 5.1 percent in 2016, with total net profits of $36.3 billion.
Key drivers for this improved airline financial performance include:
- Lower oil prices. Projected at $51 per barrel for 2016, the gain on oil prices is somewhat dampened in certain markets by the appreciation of the US dollar.
- Stronger passenger demand. Passenger demand is expected to rise by 6.9 percent next year.
- Stronger economic performance. Global GDP growth is expected to improve to 2.7 percent in 2016. There has been faster than expected recovery in the Eurozone, which outweighs the impact of slower growth in China and the downturn of the Brazilian economy.
- Efficiency gains. For airlines with high load factors, an 80.4 percent capacity is projected in 2016. Capacity is also expected to increase ahead of demand in 2016, however yields continue to deteriorate as a result of heavy competition on fares.
Passenger demand is expected to rise by 6.9 percent in 2016, with 3.8 billion passengers expected to travel
“This is a good news story,” said Tyler. “The airline industry is delivering solid financial and operational performance. Passengers are benefiting from greater value than ever – with competitive airfares and product investments.”
However, Tyler also pointed out that this improved performance is delicate because of the narrow margins on which airlines operate. “With net profit margins still in the 5 percent range there is little buffer,” he said. “On average, airlines will still make less than $10 per passenger carried. The industry’s profitability is better described as “fragile” than “sustainable,” Tyler added.
Pearce presented key performance figures for 2016, which include:
- An increase in passenger travel. Departures are expected to reach 3.8 billion in 2016.
- North American airlines had the strongest financial performance in the airline industry.
- Lower breakeven load factors. The percentage of aircraft capacity that an airline must sell to cover its costs will average 55.4 percent globally next year.
- Higher revenues. Revenues are expected to rise by 0.9 percent to $717 billion in 2016.
- Air travel is expected to get cheaper. Average yields for passengers will fall 5 percent in 2016.
“Net post-tax profits will be the highest at $19.2 billion next year,” said Pearce. “That represents a net profit of $21.44 per passenger, which is a marked improvement from just three years earlier. Net margins forecast at 9.5 percent exceed the peak of the late 1990s.”
Improved airline performance ultimately boosts global economic growth, IATA emphasizes.
“This wider economic benefit is being generated by increasing connections between cities – enabling the flow of goods, people, capital, technology and ideas – and reducing air transport costs. The number of unique city-pair connections is expected to reach more than 17,000 in 2016, double the connectivity by air twenty years ago,” Pearce said.