Air Cargo Sector Strengthens

The International Air Transport Association (IATA) announced an upward revision of its 2015 industry outlook to a $29.3 billion net profit. On expected revenues of $727 billion, the industry would achieve a 4.0 percent net profit margin. The significant strengthening from the $16.4 billion net profit in 2014 (re-stated from $19.9 billion) reflects the net impact of several global factors, including stronger global economic prospects, record load factors, lower fuel prices, and a major appreciation of the U.S. dollar.

All regions are expected to see an improvement in profitability in 2015 compared with 2014.There are, however, stark differences in regional economies, which are also reflected in airline performance. “The industry's fortunes are far from uniform. Many airlines still face huge challenges,” says Tony Tyler, IATA's Director General and CEO.

Over half the global profit is expected to be generated by airlines based in North America ($15.7 billion). For North American airlines, the margin on earnings before interest and taxation (EBIT) is expected to exceed 12 percent, more than double that of the next best performing regions of Asia-Pacific and Europe.

“For the airline business, 2015 is turning out to be a positive year. Since the tragic events of September 2001, the global airline industry has transformed itself with major gains in efficiency,” says Tyler. The result is a hard-earned 4 percent average net profit margin.”

Tyler adds that shippers should “keep things in perspective, noting that Apple earned $13.6 billion in the second quarter of this year.

“That's just under half the expected full-year profit of the entire airline industry. We don't begrudge anyone their business success. But it is important for our stakeholders – particularly governments – to understand that the business of providing global connectivity is still a very tough one,” he says.

At the industry level, a significant milestone has been achieved with an expected return on invested capital (ROIC) of 7.5 percent. For the first time, the industry-level average ROIC will be in excess of its cost of capital, which has fallen to 6.8 percent largely due to lower bond yields.

This industry average is, however, dominated by airlines in the United States, which have benefitted the most from the fall in U.S. dollar-denominated fuel prices, a strong local economy, and industry restructuring. The average non-US airline is still struggling with returns below the cost of capital and a significant debt burden.

Carriers in North America are expected to generate a profit of $15.7 billion (up from $11.2 billion in 2014) for a net margin of 7.5 percent. Airlines in the United States have been able to use this profitability to invest in new fleet, pay down high levels of debt and deliver a normal return to investors through dividends and share buy-backs.

IATA analysts say this has been driven by the relatively strong economy, a restructured industry, and the lower oil price. The region is expected to see a 3.0 percent growth in demand, although capacity is starting to pick up with an anticipated 3.1 percent expansion.

SC
MR