[Avionics Magazine 12-8-2016] Commercial airlines are projected to collectively generate a record net profit of $35.6 billion in 2017, according to the 2017 airline profitability forecast released by the International Air Transport Association (IATA) Thursday, Dec. 8. Forecasters at the global airline advocacy organization revised their 2017 outlook downward from the June 2016 projection of $39.4 billion, attributing the reduction to slower global Gross Domestic Product (GDP) growth and rising operational costs. If the $35.6 billion profit is achieved though, it would be the highest absolute profit ever generated by the global airline industry.
Qantas Airbus A380. Photo: Qantas.
“We need to put this into perspective. Record profits for airlines means earning more than our cost of capital. For most other businesses that would be considered a normal level of return to investors; but three years of sustainable profits is a first for the airline industry. And after many years of hard work in restructuring and re-engineering the business, the industry is also more resilient. We should also recognize that profits are not evenly spread with the strongest performance concentrated in North America,” said Alexandre de Juniac, IATA’s Director General and CEO.
According to IATA, higher oil prices will have the biggest impact in 2017. In 2016 oil prices averaged $44.60 per barrel and this is forecast to increase to $55 per barrel in 2017. This will push average jet fuel prices from $52.10 in 2016 to $64.90 per barrel next year. Fuel is expected to account for 18.7 percent of the industry’s cost structure in 2017, which is significantly below the recent peak of 33.2 percent in 2012-2013.
The strongest financial performance is being delivered by airlines in North America. Net post-tax profits will be the highest at $18.1 billion next year, although down slightly from the $20.3 billion expected in 2016.
European airlines are projected to generate a net profit of $5.6 billion in 2017, a drop from the $7.5 billion in 2016, and Asia Pacific carriers are expected to generate $6.3 billion next year, a drop from the $7.3 billion figure in 2016.
In 2017, IATA is also projecting airlines to take delivery of 1,700 new aircraft.