Profits may have peaked, say airline bosses
27 / 10 / 2016
Profitability in the industry may have peaked, according to IATA’s quarterly business confidence survey of airline chief financial officers and heads of cargo.
When surveyed in early October, they reported that profitability was unchanged in the third quarter of 2016 compared to the same period a year ago and also that they expect very little change over the next 12 months. This is consistent with signs that the industry profitability cycle may have peaked, says IATA.
However, there are no signs that profits are about to fall, the report adds. The survey results are show that there is no expected change from a relatively healthy financial position for the industry.
The modest moderation in passenger growth seen during most of this year to date was in line with an improvement in conditions for air cargo seen since early 2016. Expectations for volume growth over the year ahead remain positive for both passenger and cargo. Some 48% of respondents expect cargo volumes to increase over the coming 12 months, the highest proportion since October 2015.
Most respondents reported an annual decrease in operating costs in the third quarter of 2016, helped in some cases by the recovery of some currencies against the US dollar, notably the Russian rouble and the Brazilian real. But given that oil and jet fuel prices have trended slowly higher since bottoming out in early 2016, the majority expect input costs to increase over the next 12 months.
Given current expectations for yields, profitability could be challenged, with ongoing increases in freight capacity – mainly from additional passenger bellyhold capacity – expected to continue to weigh on freight yields over the coming 12 months, says the report. The weighted-average score for cargo yields remains close to a seven-year low and almost 90% of respondents expect them to remain unchanged or fall further in the year ahead.
Financial performance is holding up best in North America but less well elsewhere, including Europe where terrorist attacks have weighed on airline profits.
Employment by airlines increased for the seventh consecutive period in the third quarter of 2016 but respondents were more cautious about expectations over the next 12 months than they have been in recent surveys.