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Global airlines industry to reap $29.8b in 2017 net profit

Middle East carriers forecast to generate a net profit of $0.3 billion for a net margin of 0.5%

  • Alexandre de Juniac, Director-General and CEO, IATA.Image Credit: Supplied
  • The Dubai International Airport. Image Credit: Gulf News Archives

GENEVA: The global airline industry globally will make a net profit of $29.8 billion in 2017, the International Air Transport Association (IATA) said in Geneva on Thursday, announcing its financial outlook for the coming year.

For this year though, slower global economic growth and rising costs have seen the aviation watchdog revise slightly downward its outlook for airline industry profitability to $35.6 billion – a record profit, even though slightly less that its June projection of $39.4 billion.

“We forecast that the strong performance on profitability will extend into 2017. Even though we expect conditions to be more difficult, we see a safe landing safely in profitable territory,” said Alexandre de Juniac, Director-General and chief executive of IATA, who took over as the aviation body’s chief in September this year.

He added that 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%) will exceed the cost of capital (6.9%). On forecast total revenues of $736 billion represents a 4.1% net profit margin, as per IATA estimates. It means that on average, airlines will retain $7.54 for every departing passenger.

Net profits have been generated in every year since 2010. “That’s impressive considering that the oil prices averaged at or above $100 a barrel Brent for three of those years,” de Juniac said.

According to the IATA estimates, the transformation the transformation of the industry is helping airlines to better serve the “nearly 4 billion” travellers – a record number – the aviation body expects in 2017.

MIDDLES EAST

The Middle East carriers, meanwhile, are forecast to generate a net profit of $0.3 billion for a net margin of 0.5 per cent and an average profit per passenger of $1.56. This is below the $900 million profit expected in 2016.

IATA said that average yield for the region’s airlines are low but unit costs are even lower, partly driven by the strong expansion, forecast at 10.1 per cent this year, ahead of expected demand growth of 9.0 per cent.

“Threats are emerging to the success story of Gulf carriers, including increases in airport charges across the Gulf states and growing air traffic management delays,” said de Juniac.

“We understand they are doing well in terms of profitability. And what we say to the governments over there is do not increase too much taxes and charges. Otherwise you will put an end to that fantastic success story,” he told Gulf News on the sidelines of the conference.

OIL

Expected higher oil prices will have the biggest impact on the outlook for 2017, IATA said. Fuel is expected to account for 18.7% of the industry’s cost structure in 2017, “which is significantly below the recent peak of 33.2% in 2012-2013,” said Brian Pearce, IATA’s Chief Economist.

In 2016 Brent oil averaged $44.6 a barrel and this is forecast to increase to $55 in 2017, according to IATA estimates. “This will push jet fuel prices from $52.1 a barrel (2016) to $64.9 a barrel (2017),” Pearce said.

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