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Global airlines to return to $39.4b profitability in 2016- Tyler
By our correspondent who is in Dublin
The outgoing Director-General and CEO of the International Air Transport Association (IATA), Tony Tyler has assured that global airlines would soon return to profitability, adding that airlines are engines of prosperity.
He started that they have long struggled to turn a profit and reward investors, adding, “That is beginning to change.”
Overall, despite generally adverse economic conditions, it is a good time for the air transport industry.
In his report on the air transport industry at the on-going 72nd IATA Annual General Meeting in Dublin, Ireland, the IATA chief disclosed that this year, they expect a collective net profit of $39.4 billion.
In 2015 airlines generated a global aggregate profit of $35.3 billion (re-stated from $33.0 billion estimated in December 2015). All regions are making a contribution to the $4.1 billion boost over 2015 profits with improved results; but there are stark regional differences in performance. Over half of the industry profits will be generated in North America ($22.9 billion) while African carriers are forecast to continue generating an overall loss (-$0.5 billion).
“It will be only the second year in our history—and the second in a row—in which airlines will make an aggregate return in excess of the cost of capital. After decades of capital destruction, that’s a significant achievement. But it is still just the minimum performance that investors expect,” he added.
To him, profitability is not evenly spread, stressing that the passenger business is growing robustly while cargo stagnates.
He however stated that some regions are doing very well while others are struggling, noting that individually, some of the airlines are experiencing good times, while others face a world in crisis.
He stated that on average, airlines will make $10.42 for each passenger carried. In Dublin, that’s enough to buy four double-espressos at Starbucks.
“Put another way, for every $100 in sales that Starbucks makes, their net profit is over $11. But airlines will only make $5.60. We don’t begrudge Starbucks their profitability. But there is clearly still upside for airlines.”
Speaking further, Tyler explained that lower oil prices are certainly helping—though tempered by hedging and exchange rates, hinting that their hard work is strengthening the business, with load factor said to at record levels.
New value streams are increasing ancillary revenues. And joint ventures and other forms of cooperation are improving efficiency and increasing consumer choice while fostering robust competition.
On global economy, he said weak economic conditions prevail, with Gross Domestic Product (GDP) expected to expand by 2.3 per cent in 2016. That is down from 2.4 per cent in 2015 and the weakest growth since 2008 when the global financial crisis hit.
He reiterated that consumer spending is relatively strong, but the corporate sector is conserving cash and, despite some easing of government austerity budgets and low interest rates, there is little evidence of an acceleration in infrastructure spending.
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