Story ID: GPiataprofits12102014
IATA Adjusts Profit Forecast Upward
By: Gregory Polek
Caption: Industry group now expects world's airlines to make $19.9 billion this year.
Word Count: 513
The International Air Transport Association (IATA) has adjusted its airline profit outlook for this year from its June projection of $18 billion to $19.9 billion, reflecting lower oil prices and stronger than expected worldwide GDP growth. According to the group’s Economic Performance of the Air Transport Industry report, airlines’ collective net profit will rise to $25 billion next year, as continued low fuel prices and strong economic growth drive positive results in all regions examined by IATA.

Crucially, consumers will benefit from the stronger industry performance as lower industry costs and efficiencies result in lower airfares, said the report. IATA expects that, after adjusting for inflation, average return airfares will fall by some 5.1 percent next year and cargo rates will decline by 5.8 percent.

The expected $25 billion net post-tax profit would amount to a net profit of $7.08 per passenger in 2015, compared with $6.02 earned in 2014 and more than double the $3.38 earnings per passenger achieved in 2013.

Furthermore, IATA expects return on invested capital (ROIC) to grow to from 6.1 percent this year to 7 percent in 2015.

“The industry outlook is improving,” said IATA director general Tony Tyler. “The global economy continues to recover and the fall in oil prices should strengthen the upturn next year. While we see airlines making $25 billion in 2015, it is important to remember that this is still just a 3.2-percent net profit margin. The industry story is largely positive, but there are a number of risks in today’s global environment—political unrest, conflicts, and some weak regional economies among them. And a 3.2-percent net profit margin does not leave much room for a deterioration in the external environment before profits are hit.”

IATA projects the “substantial” fall in oil prices to continue into next year, averaging $85 a barrel for Brent crude. If the assumption proves correct, it would mark the first time oil had dropped below $100 per barrel since 2010, when the cost of oil averaged $79.40.

As a result of the oil price declines, IATA expects next year’s jet fuel prices to average $99.90 per barrel, amounting to just 26 percent of total industry costs. IATA data shows that fuel efficiency will have improved by 1.8 percent this year, and the group expects the trend to continue next year. Fuel efficiency improvements could accelerate by reducing the 5 percent of wasted fuel burn resulting airspace and airport inefficiencies, it noted.

Meanwhile, forecasts call for global GDP to grow by 3.2 percent in 2015, up from 2.6 percent this year, resulting in growth in passenger traffic of 7 percent, compared with the 5.5 percent trend of the past two decades. Cargo volumes will also continue to grow, said IATA, reaching a 4.5-percent increase in 2015, compared with 4.3 percent this year. Although IATA expects next year’s total cargo revenues to rise to $63 billion, the amount remains some 5 percent lower than what the industry collected in 2010. “The air cargo business has faced weak markets and increasing competition since 2011,” said IATA in a statment. “There has been an uptick in demand recently but cargo remains a tough business.”