The International Air Transport Association, IATA, has announced that member airlines would rake in about $39.4 billion in 2016.
The outgoing Director General and CEO of the IATA, Tony Tyler, who spoke at the opening of the 72nd IATA Annual General Meeting in Dublin, explained that carriers would earn more this year than initially projected.
In December 2015, it was projected that airlines would earn $36.3 billion in 2016 but indication showed that the earnings would increase to the aforementioned which is expected to be generated on revenues of $709 billion for an aggregate net profit margin of 5.6 percent.
The year 2016 is expected to be the fifth consecutive year of improving aggregate industry profits; however, but African airlines would lose $0.5 billion during the period.
Tyler said in 2015, airlines generated a global aggregate profit of $35.3 billion (re-stated from $33.0 billion estimated in December 2015).
He said over half of the industry profits will be generated in North America ($22.9 billion) while African carriers are forecast to continue generating an overall loss (-$0.5 billion), adding that lower oil prices spurred the profit.
“Lower oil prices are certainly helping—though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices. Performance, however, is being bolstered by the hard work of airlines. Load factors are at record levels. New value streams are increasing ancillary revenues.
And joint ventures and other forms of cooperation are improving efficiency and increasing consumer choice while fostering robust competition. The result: consumers are getting a great deal and investors are finally beginning to see the rewards they deserve,” said Tyler
He said on average, airlines would make $10.42 for each passenger carried.
“In Dublin, that’s enough to buy four double-espressos at Starbucks. Looked at from a different angle Starbucks will earn about $11 for every $100 in sales while airlines will make $5.60. We don’t begrudge Starbucks their profitability. But there is clearly still upside for airline profits,” said Tyler.
He disclosed that for the second year in a row and only the second time in the airline industry’s history, the return on invested capital (9.8 percent) would exceed the cost of capital (estimated to be 6.8 percent).
This is the minimum expectation level for investors, adding that the airline industry was beginning to generate profits that would be expected of any normal business.