The International Air Transport Association (IATA) revised its 2016 financial outlook for global air transport industry profits upwards to US$39.4bn (from US$36.3bn forecast in December 2015). That is expected to be generated on revenues of US$709bn for an aggregate net profit margin of 5.6%. 2016 is expected to be the fifth consecutive year of improving aggregate industry profits. In 2015 airlines generated a global aggregate profit of US$35.3bn (re-stated from US$33.0bn estimated in December 2015). All regions are making a contribution to the US$4.1bn boost over 2015 profits with improved results; but there are stark regional differences in performance. Over half of the industry profits will be generated in North America (US$22.9bn) while African carriers are forecast to continue generating an overall loss (US-$0.5bn).
“Lower oil prices are certainly helping—though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices. Performance, however, is being bolstered by the hard work of airlines. Load factors are at record levels. New value streams are increasing ancillary revenues. And joint ventures and other forms of cooperation are improving efficiency and increasing consumer choice while fostering robust competition. The result: consumers are getting a great deal and investors are finally beginning to see the rewards they deserve,” said Tony Tyler, IATA’s Director General and CEO.
On average, airlines will make US$10.42 for each passenger carried. “In Dublin, that’s enough to buy four double-espressos at Starbucks. Looked at from a different angle Starbucks will earn about US$11 for every US$100 in sales while airlines will make US$5.60. We don’t begrudge Starbucks their profitability. But here is clearly still upside for airline profits,” said Tyler. For the second year in a row and only the second time in the airline industry’s history, the return on invested capital (9.8%) will exceed the cost of capital (estimated to be 6.8%). This is the minimum expectation level for investors. The airline industry is beginning to generate profits that would be expected of any normal business.
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