IATA ups net profit forecast
IATA has increased its full year industry net profit forecast to US$19.9 billion, up from $US18 billion in June, mainly due to the plunge in oil prices – and it is expecting an even better performance next year.
The industry trade body is penciling in a net profit of US$25.0 billion in 2015. But Asia-Pacific carriers are expected to account for just a fifth of this, compared to half in 2010.
This will still be an improvement on 2014, where the region’s carriers are expected to make a net profit of US$3.5 billion. But next year’s improvement will only be a 2.2% net profit margin, or US$4.30 per passenger.
“Some strengthening of cargo markets, particularly important in this manufacturing region, plus lower fuel costs, are expected to drive the moderate improvement on 2014.”
The star performer by far is North America, where net post-tax profits are expected to come in at US$13.2 billion (up from US$11.9 billion in 2014). That represents a net profit of US$15.54 per enplaned passenger. Net profit margins forecast at 6% exceed the peak of the late 1990s.
In the Middle East, post-tax net profits are expected to grow to US$1.6 billion in 2015 (up from US$1.1 billion in 2014)
Commenting on the drivers for 2015, IATA notes: “Oil prices have fallen substantially in recent months and this is expected to continue into 2015 with the full-year average price expected to be US$85/barrel (Brent). If that assumption is correct, it would be the first time that the average oil price has fallen below US$100/barrel since 2010 (when oil averaged US$79.4/barrel).”
IATA says, “Jet fuel prices are expected to average at US$99.9/barrel in 2015 for a total fuel spend of US$192 billion which represents 26% of total industry costs. It is important to note that the impact of lower fuel prices will be realized with a time lag, due to forward fuel-buying practices. Improving fuel efficiency continues to be a priority for airlines. Fuel efficiency is estimated to have improved by 1.8% in 2014 and a further improvement is expected in 2015. Fuel efficiency improvements could be accelerated by reducing the 5% of wasted fuel burn as a result of airspace and airport inefficiencies.”
The trade body expected global GDP grow by 3.2% in 2015, up from 2.6% in 2014. “This will be the first time that global GDP has broken over 3.0% since 2010 (when global GDP grew by 4.1% in a post-recession bounce back), this time boosted by the fall in oil prices.”
Passenger traffic is expected to grow by 7.0% in 2015 which is well-above the 5.5% growth trend of the past two decades. Capacity growth is expected to outstrip this slightly at 7.3%, pushing the passenger load factor to 79.6% (slightly down on the 79.9% expected for 2014). The fall in the price of fuel is expected to lead to cheaper airfares for consumers. After adjusting for inflation, average return air fares (excluding surcharges and taxes) are expected to fall by 5.1% to US$458 in 2015. Total passenger numbers are expected to grow to 3.5 billion and passenger revenues are expected to grow to US$623 billion.
Cargo volumes are expected to grow by 4.5% in 2015 (slightly ahead of the 4.3% growth expected for 2014). The air cargo business has faced weak markets and increasing competition since 2011. There has been an uptick in demand recently but cargo remains a tough business. The real cost of transporting goods in 2015 is expected to fall by 5.8%. In total, some 53.5 million tonnes of air cargo is expected to be flown in 2015. Total cargo revenues are expected to rise to US$63 billion, but that is still some 5% lower than in 2010.