Story ID: GPiataagm06022016
Cautious Optimism Prevails at IATA AGM
By: Gregory Polek
Caption: Despite big profits, Tyler sees ‘upside’ for airlines
Word Count: 460
Speaking Thursday on the second day of the International Air Transport Association’s annual general meeting in Dublin, outgoing IATA director general Tony Tyler issued a somewhat mixed message about the state of an industry expecting to turn a net profit of $39.4 billion this year, marking the second year in a row airlines make an aggregate return in excess of the cost of capital. Although he called the performance a significant achievement after decades of “capital destruction,” he also characterized it as the bare minimum of what investors expect.

“On average, airlines will make $10.42 for each passenger carried. In Dublin, that’s enough to buy four double-espressos at Starbucks,” Tyler quipped. “Put another way, for every $100 in sales that Starbucks makes, their net profit is over $11. But airlines will make only $5.60. We don’t begrudge Starbucks their profitability. But there is clearly still upside for airlines.”

Tyler’s comments come just a few days after IATA reported that traffic demand for April rose by just 4.6 percent over the same month last year—its slowest pace since January 2015. It marked the second straight month of sharply slower growth since February’s increase of 8.6 percent. April capacity as measured by available seat kilometers increased by 4.9 percent, resulting in a drop in load factor of 0.3 percentage points, to 79.1 percent.

Even absent the April terrorist attack on Brussels Airport, traffic would have grown by just 5 percent, said IATA. “The disruptive impacts of the Brussels terror attacks likely will be short-lived,” said Tyler. “There are some longer-term clouds over the pace of demand growth. The stimulus from lower oil prices appears to be tapering off. And the global economic situation is subdued. Demand is still growing, but we may be shifting down a gear.”

Despite what Tyler called generally adverse economic conditions, however, times are good for the air transport industry overall, he added. Consumers, for example, enjoy “great deals” and lots of choice; investors have begun to see “reasonable” rewards for the capital they risk and airlines have begun to pay down debt. Although Tyler said it will take several years of solid profitability before airlines can repair most balance sheets profitably, “simply put, we are beginning to be a normal business, as well as a force for good,” he noted.

While IATA would like to believe the gathering of the world’s airlines in Dublin reflects a high level of industry solidarity, it can’t erase competitive “issues” such as trade disputes between some North American and European carriers and the three big airlines from the Persian Gulf. In fact, said Tyler, IATA plays no role in arbitrating such disputes among its members. “These are the province of governments,” he concluded.