The International Air Transport Association (IATA) reports that the airline industry remains on track to deliver a second consecutive year of improved profitability. This is despite a slight downward revision to its industry outlook for 2014 to an industry profit of $18.7 billion from the previously forecast $19.7 billion.
The main driver of the downward revision is higher oil prices, now expected to average $108.0/barrel (Brent) which is $3.5/barrel above previous projections. The $3 billion added cost on the industry’s fuel bill is expected to be largely offset by stronger demand, especially for cargo, which is being supported by a strengthening global economy. Overall industry revenues are expected to rise to $745 billion ($2 billion greater than previously projected).
“In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geo-political instability. Overall industry returns, however, remain at an unsatisfactory level with a net profit margin of just 2.5%,” said IATA director general Tony Tyler.
The aviation industry retains on average $5.65/passenger in net profit. This is improved from $2.05 in 2012 and $4.13 in 2013. But it is below the $6.45 achieved in 2010.
“The efficiencies of improved industry structure through consolidation and joint ventures is providing more value to passengers and helping airlines to remain profitable even in difficult trading conditions,” added Tyler. “But we still need governments to understand the link between aviation-friendly policies and broader economic benefits. In many parts of the world the industry’s innate power to drive prosperity through connectivity is compromised by high taxes, insufficient infrastructure and onerous regulation.”
North American airlines are expected to post a profit of $8.6 billion — the biggest contribution to industry profits. This is $300 million better than previously projected, reflecting the strength of the economic recovery in the US.
The solid profitability of the North American industry is being driven by the efficiencies gained through consolidation and the contribution of ancillary revenues, which are most developed in the North American market. The anticipated $8.6 billion profit is more than double the $4.2 billion profit posted in 2010, the previous peak, and represents a third consecutive year of improving profitability. An anticipated EBIT margin of 6.5% is the strongest among the regions.