Global aviation body revises 2017 profitability outlook upwards

The International Air Transport Association (IATA) has revised upwards its 2017 industry profitability outlook, indicating a $31.4 billion profit, up from the previously forecast $29.8 billion, but carriers in Africa are projected to register negative growth in revenue.
RwandAir's Airbus A330-300 on the runway. African airlines are projected to register 7.5% growth in the number of passengers carried this year, IATA's revised forecast indicates. (File)
RwandAir's Airbus A330-300 on the runway. African airlines are projected to register 7.5% growth in the number of passengers carried this year, IATA's revised forecast indicates. (File)

The International Air Transport Association (IATA) has revised upwards its 2017 industry profitability outlook, indicating a $31.4 billion profit, up from the previously forecast $29.8 billion, but carriers in Africa are projected to register negative growth in revenue.

According to the new outlook report, African airlines’ profitability would be affected by high taxes, higher-than-global-average fuel prices, as well as competition from the Gulf carriers and limited intra-continental liberalisation, Alexandre de Juniac, IATA’s Director General and CEO, said during the just-concluded 73rd IATA Annual General Meeting and World Air Transport Summit in Cancun, Mexico.

 

The report indicated that African carriers, including RwandAir, are projected to register a passenger increase of more than 7.5 per cent, slightly lower than the earlier targeted growth of 7.9 per cent.

 

The IATA chief said demand for both the cargo and passenger business will be stronger than expected. He, however, noted that high fuel and maintenance costs were still big barriers to the sector’s growth, noting that high cost of fuel, labour and maintenance rose in the first quarter. Overall, industry expenses are expected to rise to $687 billion, a $44 billion increase compared to 2016. Industry revenues are expected to increase to $743 billion, $38 billion more than 2016.

 

“While revenues are increasing, earnings are being squeezed by rising fuel, labour and maintenance expenses. 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,” he said in a statement on Monday.

Airlines are expected to retain a net profit of $7.69 per passenger lower than $9.13 in 2016 and $10.08 in 2015. The average net profit margin stands at 4.2 per cent (down from 4.9 per cent in 2016).

While overall industry performance is strong, major regional variations remain. About half the industry profits are being generated in North America ($15.4 billion). Carriers in Europe and Asia-Pacific will each add a $7.4 billion profit to the industry’s total, while Latin America and Middle East carriers are expected to earn $800 million and $400 million, respectively, and Africa carriers will post a $100 million loss.

Growth drivers

According to the aviation body the environment has been much stronger than anticipated and expectations for GDP growth in 2017 stand at 2.9 per cent.

If realised, this will be the strongest global economic performance since 2011.

Passenger demand is expected to remain stable at 7.4 per cent, but 2.3 percentage points higher than previously projected. Stronger demand translates into an additional 275 million passengers (over 2016), which will bring the total number of passengers expected to fly this year to 4.1 billion. If achieved, this would be the largest year-on-year growth in absolute passenger numbers ever recorded, IATA said.

What is most important for the industry financial performance is that this surge is expected to increase traffic growth ahead of planned capacity growth. As a result, the average passenger load factor is expected to reach 80.6 per cent slightly higher than 80.3 per cent achieved in 2016, helping to boost the per unit revenues, according to the projection.

Cargo demand is equally expected to grow by 7.5 per cent this year, more than double the 3.6 per cent growth rate registered last year, and 4.0 percentage points above the previous forecast for the year.

Overall, total cargo carried is expected to reach 58.2 million tonnes, higher than previously forecast by 2.5 million tonnes, and 3.9 million tonnes over 2016 levels, IATA indated. Air cargo usually grows strongly at the start of an economic upturn, as firms turn to rapid air transport to restock inventories. There are also retail trends, such as the switch to e-commerce and in pharmaceuticals, which are supporting air cargo growth.

The global airline association also called on governments to enhance their collaboration with the industry to meet rising security challenges, as well as improve infrastructure and ensure strong regulation. The global aviation industry is expected to generate a $31.4 billion profit or about $7.69 average profit per passenger.

The IATA chief called for open skies to improve flow of people and trade. “There are governments that still have protectionist measures, but this is a threat to the industry,” he noted, adding that flying remains the safest form of long distance travel.

Though aviation security is largely the responsibility of governments, Dr Benard Aliu Olumuyiwa, the president of the Council of the International Civil Aviation Organisation (ICAO), said airlines also have a big stake in the matter “because the safety and security of passengers should be their top priority.”

Dr Olumuyiwa called onboth public and private sector to find solutions to the infrastructure challenges, especially in emerging markets, including Africa, and deficiencies in airport and air navigation services.

editorial@newtimes.co.rw

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