Improved profitability for aviation in 2014-2015, says IATA

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Brussels_AirportThe International Air Transport Association (IATA) predicts a collective global net profit for airlines of some US$19.9 billion (up from the $18 billion projected in June) in 2014, rising to $25 billion in 2015, boosted by  lower oil prices and stronger worldwide economic growth.

In its Economic Performance of the Air Transport Industry report, IATA said the expected $25 billion in net profit represents a 3.2% margin, as the airline industry is set to see improved overall profitability this year and the next.

“The industry outlook is improving. The global economy continues to recover and the fall in oil prices should strengthen the upturn next year,” said Tony Tyler, IATA’s director general and CEO.

“While we see airlines making $25 billion in 2015, it is important to remember that this is still just a 3.2% net profit margin. The industry story is largely positive, but there are a number of risks in today’s global environment—political unrest, conflicts, and some weak regional economies—among them. And a 3.2% net profit margin does not leave much room for a deterioration in the external environment before profits are hit.”

The report added that global GDP is expected to grow by 3.2% in 2015, up from 2.6% in 2014. “This will be the first time that global GDP has broken over 3.0% since 2010 (when global GDP grew by 4.1% in a post-recession bounce back), this time boosted by the fall in oil prices.”

On the air cargo business, IATA said volumes are estimated to grow by 4.3% in 2014 and 4.5% in 2015. Despite an uptick in demand recently, cargo remains a tough business as the industry has faced weak markets and increasing competition since 2011. In total, some 53.5 million tonnes of air cargo is expected to be flown in 2015. Total cargo revenues are expected to rise to $63 billion, still some 5% lower than in 2010.

Meanwhile, passenger traffic is expected to grow by 7% in 2015 which is well above the 5.5% growth trend of the past two decades. Capacity growth is expected to outstrip this slightly at 7.3%, pushing the passenger load factor to 79.6% (slightly down on the 79.9% expected for 2014). Total passenger numbers are seen to grow to 3.5 billion, and passenger revenues to hit $623 billion.

All regions are expected to report improved net profitability in 2015 over 2014, but with stark differences in profitability.

Asia-Pacific airlines are forecast to achieve a net profit of $5 billion in 2015, up from $3.5 billion in 2014, for a 2.2% net profit margin. Some strengthening of cargo markets, particularly important in this manufacturing region, plus lower fuel costs, is expected to drive the moderate improvement on 2014.

North American airlines are delivering the strongest financial performance by far. Net profits are the highest at $13.2 billion next year (up from $11.9 billion in 2014). Net profit margins forecast at 6% exceed the peak of the late 1990s.

European airlines continue to struggle as they are hampered by high regulatory costs, infrastructure inefficiency, and onerous taxation. Net profits of $4 billion next year (up from $2.7 billion in 2014) represent only $4.27 per passenger and a net profit margin of 1.8%.

Middle East airlines’ 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%.

Some long-haul success for Latin American airlines is expected to boost net profits to $1 billion in 2015 (up from $700 million in 2014). That would be a profit of $3.53 per passenger and a net profit margin of 2.6%.

Africa is the weakest region, as profits are barely positive ($200 million in 2015 which is an improvement on the break-even performance in 2014). Performance is improving, but slowly.

Higher passenger, cargo traffic for airports in 2014

On the other hand, Airports Council International (ACI) forecasts growth in passenger traffic for 2014 to be at 5%  and airfreight volumes at over 4% against 2013.

ACI said global airfreight traffic continued to maintain an upward trend in volumes with a year-over-year growth rate of 5% in October. Overall accumulated volumes for the last 12 months rose by 4.6%. International freight volumes jumped up by 5.6%, whereas domestic volumes increased by 3.4%.

Asia-Pacific posted increases in volumes of 4.8% for the month, which is slightly below the 12-month growth trend of 5.7%. Nevertheless, the region’s largest freight hubs continue to report gains in volumes. Hong Kong, Shanghai, and Incheon saw volumes increase by 4.3%, 7.5%, and 1.7%, respectively, for the month.

Elsewhere, the Middle East posted the greatest increase in freight volumes at 13.7% year-over-year in October. Africa also achieved double-digit growth of 10.7% in October. North America likewise experienced growth of over 4% following a weakened airfreight market in 2013.

Europe experienced more moderate growth of 3.6% year-over-year. With ongoing weakness in the Brazilian and Argentinian economies, freight volumes in Latin America-Caribbean increased only slightly by 1.7% for October.

“Although there has been improvement in the United States economy coupled with greater momentum in international trade volumes in Asia-Pacific, downside risks continue to persist in other regions, particularly in the Euro area,” said ACI world economics director Rafael Echevarne.

“That being said, air travel has showed some level of immunity to the ongoing risks in the global economy despite its link to the overall business cycle. Growth in passenger traffic will still be in the realm of 5% for 2014 by year’s end with airfreight also growing by over 4% as compared 2013.”

Photo: Ad Meskens