On the back of lowered oil prices and stronger worldwide Gross Domestic Product (GDP) growth, the airline industry profit is set to rise to $25 billion in 2015.
The airlines are however expected to post a collective global net profit of some $19.9 billion in 2014 (up from the $18bn projected in June).
According to a data released by the International Air Transport Association (IATA), consumers will benefit substantially from the stronger industry performance as
lower industry costs and efficiencies are passed through.
“The airline industry is highly competitive. After adjusting for inflation, average return airfares (excluding taxes and surcharges) are expected to fall by some 5.1 percent on 2014 levels and cargo rates are expected to fall by a slightly bigger 5.8 percent.
“The expected $25 billion net post-tax profit represents a 3.2 percent margin. On a per passenger basis, airlines will make a net profit of $7.08 in 2015. That is up on the $6.02 earned in 2014 and more than double the $3.38 earnings per passenger achieved in 2013,” Tony Tyler, director-general of IATA, said.
According to him, the Return on Invested Capital (ROIC) is expected to grow to 7 percent, as this is a substantial improvement on the 6.1 percent ROIC expected to be
achieved in 2014.
“This is still 0.8 percentage points below the 7.8 percent weighted average cost of capital (WACC), so there is still some ground to cover before achieving sustainable
margins. The industry outlook is improving. The global economy continues to recover and the fall in oil prices should strengthen the upturn next year. While wesee airlines making $25 billion in 2015, it is important to remember that this is still just a 3.2 percent net profit margin.
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 economiesamong
them,” he said.
Source : BusinessDay