Chinedu Eze in Dublin
The outgoing Director General and Chief Executive Officer of the International Air Transport Association (IATA), Tony Tyler, has announced that member airlines would earn about $39.4 billion this year.
Speaking at the opening of the 72nd IATA Annual General Meeting in Dublin yesterday, Tyler explained that airlines would earn more this year than initially projected.
In December 2015, the forecast was that airlines would earn $36.3 billion in 2016 but indication showed that the earnings would increase to the aforementioned which is expected to be generated on revenues of $709 billion for an aggregate net profit margin of 5.6 per cent.
2016 is expected to be the fifth consecutive year of improving aggregate industry profits; however, African airlines would lose $0.5 billion during the period.
Tyler said in 2015, airlines generated a global aggregate profit of $35.3 billion (re-stated from $33.0 billion estimated in December 2015), noting that all regions are making a contribution to the $4.1 billion boost over 2015 profits with improved results, but there are stark regional differences in performance.
He said over half of the industry profits would be generated in North America ($22.9 billion) while African carriers are forecast to continue generating an overall loss (-$0.5 billion), adding that lower oil prices spurred the profit.
“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,” Tyler said.
He said on the average, airlines would make $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 $11 for every $100 in sales while airlines will make $5.60. We don’t begrudge Starbucks’ profitability. But there is clearly still upside for airline profits,” Tyler stated.
The CEO disclosed that 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 per cent) would exceed the cost of capital (estimated to be 6.8 per cent). This is the minimum expectation level for investors, adding that the airline industry was beginning to generate profits that would be expected of any normal business.
“The job of shoring up resilience by repairing balance sheets is under way. We have had a few years of good profits and some airlines have started to pay down debt. It will, however, take a longer run of profits before balance sheets are returned to full health,” he explained.
Tyler however observed that repaying accumulated debt will take several years of profitability to achieve. Airlines in North America and in some parts of Europe have seen the gearing of their balance sheets fall towards investment grade levels. But for much of the rest of the industry, it is a continuing challenge.
“Airlines are producing solid results even with some strong economic headwinds. It’s an impressive performance and the mood of the industry is generally optimistic,” Tyler stated.
Chinedu Eze in Dublin