Global airlines upgrade 2015 profit forecast to $29.3bn on lower oil prices

Global airlines raised their forecast for 2015 industry profits by more than 17 per cent to US$29.3 billion on Monday, almost doubling from last year and heralding a boom for carriers in North America that stand to reap half the worldwide total.

The International Air Transport Association (IATA), announcing the upgrade during a gathering of 260 member airlines, said lower oil prices were the main factor pushing the industry further into the black. But the windfall could be muted by the rise in the value of the dollar and widespread airline fuel hedging.

“The industry’s profits are far from uniform. Many airlines still face huge challenges,” IATA director general Tony Tyler said in a declaration to the airline lobby’s annual meeting.

IATA had previously forecast a $25bn profit this year.

It said the industry’s average net profit margin would almost double to 4 per cent from last year’s 2.2 per cent. It saw the fuel bill dwindling to $191bn from $226bn in 2014, when airlines made a restated profit of $16.4bn.

At the same time, planes are expected to fly fuller than ever before as the industry continues to match capacity more closely to demand, though some airline bosses meeting in Miami are worried such discipline could start to fray.

“A focus on efficiency is seeing supply matched more closely than ever with demand and is expected to produce a record high load factor of 80.2 per cent,” IATA said, referring to the proportion of seats sold on an average flight.

The forecasts came alongside figures showing that airlines are set for a significant breakthrough in 2015, delivering returns on capital invested in them that exceed the average cost of that capital for the first time in the industry’s history.

Although some airlines generate significant profits when the economy is strong, high costs such as labour and fuel, and intense competition, have given air transport a chronic reputation for destroying value for investors.

This year, the industry, which employs 2.5 million people, is expected to generate $4.9bn of value for investors, helped by restructuring and low interest rates, IATA said.

But it noted that high returns are not widespread outside North America where, unlike many foreign rivals, airlines have felt the full benefit of cheaper fuel denominated in dollars.

An expected 7.5 per cent net profit margin in North America, fuelled by profits of $15.7bn, contrasts with profit margins of 2.5 and 2.8 per cent in Asia and Europe respectively.

Asian carriers are exposed to doldrums in the cargo industry and China’s slowdown, while Europe is hurt by the weaker euro.

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