Global airfares are set to fall through the next 12 months as global oil prices tumble, lowering airlines’ bottom line and improving profitability.
“Stronger industry performance is good news for all. It’s a highly competitive industry and consumers—travellers as well as shippers—will see lower costs in 2015 as the impact of lower oil prices
kick in,” said Tony Tyler, director general and CEO of the International Air Transport Association (IATA).
According to IATA’s Economic Performance of the Air Transport Industry report, airlines are expected to post a collective global net profit in 2014 of some US$19.9 billion, rising to US$25.0 billion in 2015.
The broader travel and tourism industry will benefit substantially from the stronger industry performance as lower industry costs and efficiencies are passed through, lowering return air fares by some 5.1% on 2014.
Falling operating costs spells good news for shareholders as well. Airline profit margins will widen to 3.2% next year, sending net profit per passenger to US$7.08 in 2015. That is up on the US$6.02 earned in 2014 and more than double the US$3.38 earnings per passenger achieved in 2013. As a result, return on invested capital (ROIC) will stretch from 6.1% in 2015 to 7.0% next year.
“The industry outlook is improving. The global economy continues to recover and the fall in oil prices should strengthen the upturn next year,” said Tyler.
“The industry story is largely positive, but there are a number of risks in today’s global environment—political unrest, conflicts, and some weak regional economies- among them.”
All regions are expected to report improved net profitability in 2015 over 2014, however there are stark differences in profitability between them.
European airlines continue to struggle as evidenced by the highest breakeven load factors among all regions (64.7%). European airlines compete vigorously in the continent’s open aviation area, but they are hampered by high regulatory costs, infrastructure inefficiency and onerous taxation. As a result, and despite the industry in the region achieving the second highest load factor, financial performance has been poor. Net profits of US$4 billion next year (up from US$2.7 billion in 2014) represent only US$4.27 per passenger and a net profit margin of 1.8%.