Airline earnings flying upwards — but not in Africa

December 14, 2015, 4:52am

By Andrea Rothman, Bloomberg on Business Day Live
Photo: Business Day Live/Thinkstock

TOULOUSE — Airline earnings were set to advance 10% to a record $36.3bn next year, aided by cheap fuel and an expanding US economy, the International Air Transport Association (Iata) said after boosting its estimate for this year by $3.7bn.

Net income across the industry should reach $33bn this year, up from a June estimate for $29.3bn that would already have been a new high, Iata said yesterday. That is almost double last year’s $17.4bn.

North American carriers were leading gains and would account for more than half of total income this year and next, Iata said. Next year’s profit margin would be about 5.1%, and the industry’s return on capital would exceed borrowing costs for the first time ever over both years, it said.

"We are finally — after years of destroying capital — delivering a minimal level of profitability that an investor would expect," Iata CEO Tony Tyler said in Geneva. "This is a good news story. The airline industry is delivering solid financial and operational performance, and passengers are benefiting from greater value than ever."

Mr Tyler cautioned that gains might slow, with most airlines having realised the maximum benefit of low oil by next year, interest rates likely to rise and the industry typically undergoing an eight-to nine-year profitability cycle.

The restructuring of the US airline industry has combined with a strong economy and appreciating dollar to lift North American earnings. Net income should total $19.4bn this year and $19.2bn next.

European airlines were likely to earn $6.9bn this year and $8.6bn next year, Iata said, with next year’s figure aided by a continued oil-price boost, as well as a recovering economy and buoyant demand for business travel on North Atlantic routes.

Asia-Pacific operators should grow earnings from $5.8bn this year to $6.6bn next year, although overall profit per passenger forecast to average $5.13 will remain well behind figures of$21.44 and $8.80 in the US and Europe respectively.

Iata cut its estimate for 2015 earnings at Middle Eastern carriers to $1.4bn, down from $1.8bn, suggesting that while the region benefits from "super-connector" carriers, smaller airlines are suffering from the effects of lower oil revenues and political and religious conflicts. Profit should recover to $1.7bn next year.

Latin American performance will suffer from a deepening economic crisis in Brazil, weak commodity prices and adverse currency fluctuations, and the region is forecast to have a $300m loss this year, recovering to a $400m profit next year.

Africa remained the industry’s weakest region, with losses of $300m forecast for this year and $100m next year and deficits per passenger worse than in Latin America, Iata said.

Economies remain weak, tourism is being hurt by instability and competition is stiffening as outside carriers add more African routes.