Airline Earnings to Near $40 Billion as Oil Beats Slowing Demandby
Trade group IATA raises 2016 earnings estimate to record level
Tyler says passenger growth will be curbed by sluggish economy
Global airline earnings are set to be $3.1 billion higher this year than previously estimated as the impact of lower fuel costs makes up for a slowdown in passenger growth, according to the industry’s main trade group.
Net profit across the sector is likely to reach $39.4 billion in 2016, extending a record result set last year, when carriers generated collective proceeds of $35.3 billion, the International Air Transport Association said Thursday at its annual gathering of airline chief executive officers, held this year in Dublin.
The improved outlook is largely a result of adopting a baseline of $45 a barrel for the average price of oil this year, versus a previous estimate of $51. At the same time, IATA reckons growth in passenger demand will slow to a “robust” 6.2 percent from 7.4 percent in 2015 as economic expansion slips to the lowest level since the global financial crisis hit in 2008.
The profit figures still represent a relative triumph, IATA Chief Executive Officer Tony Tyler, who stands down after this week’s meeting, said in an interview, arguing that consolidation, especially in the U.S., has played a crucial role in improving capacity discipline and hence bolstering fares.
“Markets are patchy, but overall the industry is doing a good job,” Tyler said. “There’s no doubt that over the last five years the industry has restructured, is managing itself better, is operating equipment that’s more efficient and has organized itself in a more sustainable way in terms of financial stability.”
Tyler predicted that European carriers in particular will follow the lead of the U.S. and continue to coalesce further around Air France-KLM Group, Deutsche Lufthansa AG and British Airways owner IAG SA.
IATA, which represents 260 airlines accounting for 83 percent of global air traffic, had previously forecast 2016 earnings of $36.3 billion. More than half of this year’s income -- some $22.9 billion -- will be generated in North America, while Africa will be the only unprofitable region with carriers there suffering a $500 million overall loss, it said.
Last year’s profit was $2.3 billion higher than suggested earlier, and more than double 2014’s $17.4 billion. Traffic growth was the most since the post-slump rebound of 2010, and planes flew more than 80 percent full.
Still, passenger traffic grew at the slowest pace since January 2015 in April, and while IATA said the March 22 attacks in Brussels were a factor, Tyler pointed to more entrenched issues as the stimulus of cheap oil tapers off.
Evidence of ebbing demand will raise concerns among airlines committed to buying record numbers of new aircraft, especially since oil prices have encouraged them to jettison recent capacity restraint and offer some of the lowest fares seen for years.
Tyler said capacity plans are set well in advance and that it will take time for airlines to rein in the deployment of extra aircraft if that proves too excessive.