financial outlook for global air transport-IATA

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 bn last December). It will be generated on revenues of $709 billion for an aggregate net profit margin of 5.6%.

Main Forecast Drivers:

Oil Prices: The outlook is based on oil averaging $45/barrel (Brent) over the course of the year which is significantly lower than the $53.9 average price in 2015. Overall, fuel is expected to represent 19.7% of the industry’s expenses, down from a recent high of 33.1% in 2012-2013.

The Global Economy: Weak economic conditions prevail. GDP is expected to expand by 2.3% in 2016. That is down from 2.4% in 2015 and the weakest growth since 2008 when the global financial crisis hit. 

Passenger Demand: Passenger demand is robust with 6.2% growth expected in 2016. That is, however, a slowdown from the 7.4% growth recorded in 2015. Capacity is expected to grow slightly ahead of demand at 6.8%. Load factors are expected to remain high (80.0%), but with a slight slip from 2015 (80.4%). 

Cargo: The cargo side of the business remains in the doldrums with 2.1% growth in demand. Overall cargo is expected to generate $49.6 billion in revenues, down from $52.8 billion in 2015.

“Lower oil prices are certainly helping—though tempered by hedging and exchange rates. Performance, however, is being bolstered by the hard work of airlines. Load factors are at record levels. New value streams are increasing ancillary revenues,” said Tony Tyler, IATA’s CEO.

Regional Diversity:North American carriers are expected have a 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.European airlines are expected to post a $7.5 billion profit in 2016 (up from $7.4 billion in 2015). Passenger capacity is forecast to grow by 5.8%, ahead of expected demand growth of 4.9%. Terror incidents have had a dampening effect on demand in some key tourist centers.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. .Middle East carriers are expected to post a $1.6 billion profit, up slightly on the $1.4 billion reported for 2015. Capacity is forecast to grow at 12.2%, outpacing an expected 11.2% expansion of demand. Airlines in Latin America are expected to see a $100 million profit in 2016 after a $1.5 billion loss in 2015. Demand is expected to grow by 4.2% while carriers are forecast to add 3.7% to capacity. The region has been hit disproportionately by the fall in commodity prices and revenues, which led to foreign exchange crises to add to the economic difficulties.African airlines are expected to post a $500 million loss in 2016, a slight improvement on the $700 million that the region’s carriers lost in 2015. Capacity growth (5.3%) is anticipated to outpace demand growth of 4.5%. Carriers in the region continue to confront a plethora of challenges including intense competition on long-haul routes, political barriers to growing intra-Africa traffic, high costs and infrastructure deficiencies.  European airlines are expected to post a $7.5 billion profit in 2016 (up from $7.4 billion in 2015). Passenger capacity is forecast to grow by 5.8%, ahead of expected demand growth of 4.9%. Terror incidents have had a dampening effect on demand in some key tourist centers.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. .Middle East carriers are expected to post a $1.6 billion profit, up slightly on the $1.4 billion reported for 2015. Capacity is forecast to grow at 12.2%, outpacing an expected 11.2% expansion of demand. Airlines in Latin America are expected to see a $100 million profit in 2016 after a $1.5 billion loss in 2015. Demand is expected to grow by 4.2% while carriers are forecast to add 3.7% to capacity. The region has been hit disproportionately by the fall in commodity prices and revenues, which led to foreign exchange crises to add to the economic difficulties.African airlines are expected to post a $500 million loss in 2016, a slight improvement on the $700 million that the region’s carriers lost in 2015. Capacity growth (5.3%) is anticipated to outpace demand growth of 4.5%. Carriers in the region continue to confront a plethora of challenges including intense competition on long-haul routes, political barriers to growing intra-Africa traffic, high costs and infrastructure deficiencies.