Lower oil costs and improving global economy to boost airline industry, says Iata

The average return air fares — excluding taxes – are expected to fall by 5.1 per cent to $458 in 2015.

Geneva // The global airline industry is expected to post a 39 per cent increase in net profit to US$25 billion in 2015, boosted by lower oil prices and an improving global economy.

The anticipated profit represents a 3.2 per cent profit margin, the International Air Transport Association (Iata) announced at its Global Media Day in Geneva on Wednesday.

“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,” said Tony Tyler, Iata’s director general and chief executive.

“And a 3.2 per cent net profit margin does not leave much room for a deterioration in the external environment before profits are hit,” he added.

The fall in jet fuel prices is likely to boost demand for air travel. Average return air fares – excluding taxes – are expected to fall by 5.1 per cent to $458 in 2015, with passenger numbers set to reach 3.5 billion.

“There is no doubt that the recent fall in oil price is a relief for airlines,” said Mr Tyler. Jet fuel currently constitutes 25 to 40 per cent of an airline’s operating costs.

Brent crude has declined more than 40 per cent since its peak in June.

Iata expects falling oil prices will continue to prevail in 2015. The global aviation association expects the full-year average price for Brent oil at $85 per barrel. However, the impact of lower oil prices on airlines will involve a delay because of the forward fuel-buying practice, better known as fuel hedging.

“Hedge is mostly over one-year period. This means that over the next 12 months half of the airlines’ fuel will be purchased on last year’s prices rather than this year’s,” said Brian Pearce, Iata’s chief economist.

“But as we move towards the end of the year, the majority of fuel being purchased will be at the low prices that we see today.”

Net profit for Middle East carriers is expected to grow to $1.6bn in 2015, up from $1.1bn in 2014. This represents a net profit margin of 2.5 per cent, Iata said.

Mr Pearce explained lower oil prices for Arabian Gulf carriers would translate to a higher profit margin as they minimise their fuel costs while transferring passengers on long-haul journeys over their hubs.

“I think the prospects are very positive for Middle Eastern airlines, despite the falling oil revenues for the economies,” said Mr Pearce.

“The Gulf carriers in particular, a large part of their business is taking long-haul travellers over their hubs. Markets linked to North America and Asia will see very healthy growth.”

selgazzar@thenational.ae

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Published: December 10, 2014 04:00 AM

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