Demand up, costs up, yields down

Demand up, costs up, yields down

The International Air Transport Association (IATA) is forecasting that the world’s airlines will make a $31.4 billion profit this year. This is up $1.6 billion from its December forecast. The association says that airlines made $34.8 billion in 2016.

US carriers are expected to make $15.4 billion (down from $16.5 billion in 2016) – almost half of total profits. European airlines $7.4 billion (down from $8.6 billion), Asia-Pacific airlines $7.4 billion (down from $8.1 billion), Latin American carriers $800 million (up from $600 million). Middle Eastern carriers $400 million (down from $1.1 billion) – and this is before the problems with Qatar yesterday. African airlines are expected to post a $1 billion loss – roughly the same as in 2016.

IATA says that rising fuel, labour and maintenance costs will continue to shroud earnings. IATA is pointing towards a passenger demand increase of 7.4% and a cargo increase of 7.5% for 2017, up 2.3% and 4% respectively from previous forecasts. Airlines can look forward to a dip after the “peak” seen last year but will still be better than the expected revenues for this year, up from already strong forecasts made in December.

“Airlines are still well in the black and delivering earnings above their cost of capital. But, compared to last year, there is a dip in profitability,” said Alexandre de Juniac, IATA’s director general and CEO. “Airlines are defining a new epoch in industry profitability.”

These figures are really impressive, but the profit per passenger is just $7.69. “With earnings of $7.69 per passenger there is not much of a buffer,” says de Juniac. Effectively the airlines are one burger and a drink away from a loss.

Alasdair Whyte
By Alasdair Whyte June 6, 2017 15:40