Airlines soaring to record profits, says IATA
The aviation industry is set to post record net earnings this year and is expected to remain profitable in 2017, despite rising oil prices and global political turbulence, its trade association said Thursday.
“Airlines continue to deliver strong results. This year we expect a record net profit of $35.6 billion” (33 billion euros), said Alexandre de Juniac, the new head of the International Air Transport Association (IATA).
That makes a decline from the $39.4 billion forecast in June, and IATA said the global net profit was expected to slide to $29.8 billion in 2017.
This projection is based on an expected average price per barrel of Brent oil of $55 next year — $10 more than in 2016.
“Even though conditions in 2017 will be more difficult with rising oil prices, we see … a very soft landing and safely in profitable territory,” de Juniac said.
In fact, he said, with 2016 set to post the third consecutive year of net profits, “these three years are the best performance in the industry’s history, irrespective of the many uncertainties we face.”
He pointed out that while most businesses might expect to be profitable year after year, “three years of sustainable profits is a first for the airline industry.”
“Record profits for airlines means earning more than our cost of capital,” he said.
IATA pointed out that 2016 was expected to mark the highest absolute profit ever generated by the airline industry, and, at 5.1 percent, the highest net profit margin.
But de Juniac acknowledged that “risks are abundant — political, economic and security among them. And controlling costs is still a constant battle in our hyper-competitive industry.”
IATA financial chief Brian Pearce meanwhile pointed to large uncertainties linked to Britain’s decision to leave the European Union and the recent US elections, with President-elect Donald Trump expected to push US economic policy towards more protectionism and less reliance on taxes.
In 2016, the number of airline passengers hit 3.8 billion, and is expected to close in on the 4.0 billion mark in 2017, IATA said, adding that it expected that number to swell to 7.2 billion by 2035.
“That growth will bring net economic benefits. But only if infrastructure development can keep pace,” he warned.
“Unfortunately, I believe that we are headed for an infrastructure crisis,” he said, stressing the urgent need to grow airport capacity, especially at hubs like New York, Bangkok, Mumbai, Mexico City and Sao Paolo.
He also mentioned the proposed third runway at London Heathrow.
“The decision to build is welcome, but the estimated cost of 17 billion pounds is outrageous,” he said, adding: “To put that into context, for that money, the UK could have built and hosted the 2012 Olympic Games twice over.”