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Airline Profitability Improves With Falling Oil Prices

IATA -tyler_March13

The International Air Transport Association (IATA) is predicting improved industry profitability in its Economic Performance of the Air Transport Industry report, with airlines expected to post a collective global net profit in 2014 of $19.9 billion (up from the $18 billion projected in June) and $25 billion in 2015.

Lower oil prices and stronger worldwide GDP growth are the main drivers behind the improved profitability.

According to IATA, consumers will benefit substantially from the stronger industry performance as lower industry costs and efficiencies are passed through. The airline industry is highly competitive and after adjusting for inflation, average return airfares (excluding taxes and surcharges) are expected to fall by 5.1% on 2014 levels.

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

He added, “Stronger industry performance is good news for all. It’s a highly competitive industry and consumers – travelers as well as shippers – will see lower costs in 2015 as the impact of lower oil prices kick in. Airline investors will see ROIC move closer to the WACC. And a healthy air transport sector will help governments in their overall objective to stimulate the economic growth needed to put the impact of the global financial crisis behind them at last.”


Posted in Airlines, News