Global airline profits set to slide back from record

Bloomberg

Global airline earnings are set to decline next year after reaching a record in 2016 as higher oil prices clip margins, according to the industry’s main trade group.
Net income across the sector is likely to total $29.8 billion in 2017, the International Air Transport Association said. That’s 16 percent lower than the $35.6 billion forecast for this year, a figure that itself represents a downward revision from the $39.4 billion estimated in June.
While airlines have been reaping record earnings following a slump in the price of crude, IATA reckons a barrel of oil will average $55 in 2017, up from $44.60 this year, lifting jet-fuel expenses to almost 19 percent of overall costs. Alexandre de Juniac, IATA’s new chief executive officer, said the profit slide amounts to a “very soft landing” for the sector.
“These three years are the best performance in the industry’s history,” De Juniac said in a statement for IATA’s annual media day in Geneva. At the same time, “risks are abundant — political, economic and security among them. And controlling costs is still a constant battle in our hyper-competitive industry.”
IATA, which represents 265 carriers accounting for 83 percent of global air traffic, cut the earnings forecast for this year because of slowing global economic growth and a 2 percent increase in non-fuel costs. The new 2016 estimate, still an all-time high, suggests industry profit will be $300 million higher than in 2015, with a margin of 5.1 percent of sales, also a record.

Traffic Growth
Growth in passenger traffic is set to slow to 5.1 percent in 2017 from an anticipated 5.9 percent this year, IATA said. That’s less than the expected increase in capacity, so average seat-occupancy levels will slip below 80 percent. Even so, the industry group sees fares stabilizing as worldwide gross domestic product picks up.
Of greater concern, according to IATA, is an uneven distribution of earnings that suggests carriers in some regions are still far from sustainable.
Almost 61 percent of 2017’s net income will be concentrated in North America, where consolidation has reduced supply and bolstered prices, IATA says, with earnings of $18.1 billion down 11 percent versus 2016. European airlines, by contrast, may see profit slump 25 percent to $5.6 billion, held back by “intense competition” and terrorism threats, while the Asia-Pacific figure is likely to decline 14 percent to $6.3 billion.
Carriers in the Middle East and Latin America will remain barely profitable, posting collective earnings of $300 million and $200 million respectively, IATA said. Africa will continue to trail the rest of the world with a forecast $800 million loss, about the same as expected this year.