IATA: Oil to aid profit, weak margins to remain

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Airlines are expected to make a net profit globally of $25 billion in 2015, helped by declining oil prices, but profit margins remain weak, according to the International Air Transport Association’s (IATA) Economic Performance of the Air Transport Industry report.

Oil prices are expected to average $85 a barrel throughout 2015, which, if correct, will be the first year it has been below $100 per barrel since 2010. IATA expects jet fuel prices to average $99.9 dollars a barrel in 2015, representing 26 per cent of industry costs, totalling $192 billion. Cargo volumes are expected to grow by 4.5 per cent in 2015, slightly above the predicted 4.3 per cent growth in 2014.

IATA director general and chief executive officer, Tony Tyler, says: “While we see airlines making $25 billion in 2015, it is important to remember that this is still just a 3.2 per cent net profit margin. A 3.2 per cent net profit margin does not leave much room for a deterioration in the external environment before profits are hit.” Tyler also says he is impressed how airlines have coped with the increases in oil prices. “In 2004 we were all wondering how airlines could cope with an oil price that was approaching $40 a barrel … Projections for next year see oil averaging at $85 a barrel. That’s more than double the 2004 price, yet somehow it now seems cheap!”

Profitability is expected to vary greatly from region to region, with some areas seeing weak margins and others barely breaking even. North America is expected to make net post-tax profits of $13.2 billion in 2015, a margin of six per cent. Asia-Pacific is expected to see the next highest profit of $5 billion, a margin of 2.2 per cent. 

Europe is expected to see net profits of $4 billion in 2015, with a margin of 1.8 per cent. The Middle East is expected to make net profits of $1.6 billion in 2015, a margin of 2.5 per cent. Latin America is predicted to make net profits of $1 billion, a margin of 2.6 per cent. Africa is expected to barely break even, with profits of $200 million, IATA says the continent is slowly improving. Tyler warns the profit margins are not evenly distributed. “Some airlines are making sustainable returns and other are struggling. Over half of the profits, some $13.2 billion, are expected to be generated by airlines in North America. In contrast, the European industry is of a similar size, but will make only $4 billion.”

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