IATA announced airline industry outlook for 2016 with average net profit margin of 5.1%

The International Air Transport Association (IATA) announced its airline industry outlook for 2016 which sees an average net profit margin of 5.1% being generated with total net profits of US$36.3bn. IATA also announced a revision to its airline industry outlook for 2015 upwards to a net profit of US$33bn (4.6% net profit margin) from US$29.3bn forecast in June.
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. In both 2015 and 2016 the industry’s return on capital (8.3% and 8.6% respectively) is expected to exceed the industry’s cost of capital (estimated to be just under 7.0% in 2015 and 2016 because of low bond yields).