Economy

Airline Profitability Rises

Douglas A. McIntyre

Published: June 2, 2016 5:44 am

Last Updated: January 13, 2020 7:19 am

Fuel prices continue at low levels, down because of oil prices. The effects of that will wear off soon, as crude rises. In the meantime, carrier profits have risen according to the IATA, the industry’s association.

In an announcement:

The International Air Transport Association (IATA) revised its 2016 financial outlook for global air transport industry profits upwards to $39.4 billion (from $36.3 billion forecast in December 2015). That is expected to be generated on revenues of $709 billion for an aggregate net profit margin of 5.6%. 2016 is expected to be the fifth consecutive year of improving aggregate industry profits.

The U.S. and its neighbors posted the strongest gains:

North American carriers continue to deliver the industry’s strongest financial performance with an expected net profit of $22.9 billion which is an improvement on the $21.5 billion reported for 2015. Passenger capacity is expected to expand by 4.3% in 2016, marginally outpacing an anticipated 4.0% increase in demand, but load factors are forecast to remain well above break-even levels.  Cash flow has been sufficient for airlines in this region to improve balance sheets significantly by repaying debt, and return cash to shareholders through dividends and share buy-backs.

Economic problems in the People’s Republic will hurt Asia’s numbers:

Airlines in Asia-Pacific are expected to post a $7.8 billion profit in 2016, up from $7.2 billion in 2015. Capacity is forecast to expand by 9.1% in 2016, ahead of demand which is likely to grow by 8.5%. Asia-Pacific carriers have a 40% share of global air cargo markets. As a result they continue to feel the brunt of stagnation in this sector, which is holding back the improvement in financial performance. Challenges include intense competition as the budget sector expands, restructuring in the Chinese economy and continuing infrastructure and cost difficulties in the Indian market.

Another area where U.S. economic strength and China’s challenges show up in a global industry’s performance.