The global airline industry’s net profits will soar to $25 billion in 2015, up from just less than $20 billion in 2014, according to projections by the International Air Transport Association (IATA).
The organization, which represents some 250 airlines comprising 84% of global air traffic, said lower fuel prices and stronger worldwide economic growth are the main reasons for improved profitability. The projected profits of $25 billion will come on revenues of $783 billion, representing a 3.2% profit margin for the industry, a tick up from the 3.1% margin of 2010, according to IATA data.
But IATA Director General and CEO Tony Tyler warned that while $25 billion sounds like a lot of money, the margin “is not much of a buffer to absorb a significant change for the worse in the operating environment.” He said external risks include economic uncertainty, political instability, public health emergencies and terrorism.
In his statement at the Dec. 10 release of the projections, Tyler noted that profits are distributed among hundreds of airlines, some of which will continue to struggle.
Nevertheless, airlines are expected to average a net profit of $7.08 per passenger in 2015, an increase from the $6.02 earned in 2014 and more than twice the $3.38 earnings per passenger in 2013. Return on capital investment, another measure of industry health, is expected to grow to 7%, a strong improvement on the 6.1% return anticipated for 2014.
Fuel expenses are expected to drop to $192 billion in 2015, down from $208 billion in 2013. That means fuel costs will account for 26.1% of the airline industry’s operating expenses in 2015, compared with 30.1% two years earlier.
However, any savings from the lower oil prices of late 2014 will be realized on a time lag due to advanced fuel-buying practices, IATA said. Airlines also continue to emphasize improved fuel efficiency to trim this critical cost segment.
Other highlights of the IATA’s annual outlook include:
“Aviation is an incredibly interesting, complex and vital activity,” Tyler said. Without “aviation our world would be very different – less connected and much less prosperous.”