IATA reveals airline industry outlook for 2016

The International Air Transport Association (IATA) has revealed its airline industry outlook for 2016, which forecasts an average net profit margin of 5.1% being generated with total net profits of $36.3 billion.

IATA also announced a revision to its airline industry outlook for 2015 upwards to a net profit of $33 billion (4.6% net profit margin) from $29.3 billion forecast in June.

IATA said the strengthening industry performance is being driven by a combination of factors:

• Lower oil prices (forecast to be $55/barrel Brent in 2015 and averaging a lower $51/barrel in 2016) are giving airline profits a boost; however this is strongly moderated in many markets by the appreciation of the US dollar.
• Strong demand for passenger travel (+6.7% growth in 2015 and +6.9% in 2016) is making up for disappointing cargo demand growth (+1.9% in 2015; strengthening to 3.0% in 2016). Weak cargo performance reflects sluggish growth in trade.
• Stronger economic performance in some key economies (including a faster than expected recovery in the Eurozone) is outweighing the overall impact of slower growth in China and the downturn in the Brazilian economy. Global GDP growth is expected to improve to 2.7% in 2016 (up from 2.5% for 2015).
• Efficiency gains by airlines are illustrated by record high load factors (80.6% in 2015, tapering slightly to 80.4% in 2016). Capacity is increasing and is expected to move ahead of demand growth in 2016. Yields, however, continue to deteriorate amid stiff competition.

“This is a good news story. The airline industry is delivering solid financial and operational performance. Passengers are benefiting from greater value than ever—with competitive airfares and product investments. Environmental performance is improving. More people and businesses are being connected to more places than ever. Employment levels are rising. And finally our shareholders are beginning to enjoy normal returns on their investments,” said Tony Tyler, IATA’s director general and CEO.

In 2016 total passenger numbers are expected to rise to 3.8 billion traveling over some 54,000 routes.

European airlines are expected to deliver performance improvements with net profits increasing from $6.9 billion in 2015 to $8.5 billion in 2016. Lower fuel costs (hedging rates of 80-90% for the majority of large airlines has delayed much of the benefit from low fuel prices into 2016), a faster than expected recovery of the European economy and strong performance on business travel on North Atlantic routes is benefitting the region. However, performance is very patchy with intense and increasing competition on intra-European markets reducing the financial performance of some of those exposed to these markets. On a per passenger basis, however, profits are $8.80 which places their performance significantly behind that of North American carriers. Capacity growth is expected to accelerate from 3.9% in 2015 to 6.2% in 2016 with Turkey being a major driver.