Airlines to make $US39.4bn amid oil price uplift

IATA says oil price uplift will boost profits further this year, despite softer passenger growth.

Low oil prices are continuing to underpin the profits of the global airline industry, which is tipped to bring in more than $US39 billion this year.

The global aviation industry’s trade body, IATA, has forecast profits of $US39.4 billion for 2016, up from the $US35.3bn generated in 2015, even as the industry concedes that a slowdown in passenger growth — brought on by concerns of a sluggish global economy — are starting to infect the travel industry.

The global aviation industry continues to benefit from the low cost of oil, which is the chief ingredient in one of the industry’s greatest expenses, jet fuel.

IATA is expecting that the price of crude will average out at $US45 a barrel this year versus a previous estimate of $US51 a barrel. Fuel is expected to represent just under 20 per cent of expenses for airlines this year, down from a 33 per cent high in 2012-2013.

But the bottom line boost from low oil prices, however, is expected to peter out in the coming years, according to outgoing IATA chief Tony Tyler.

“We are probably nearing the peak of the positive stimulus from lower oil prices,” he said.

While airlines continue to benefit from lower oil prices, their potential profit pools are being squeezed by slowing passenger growth.

IATA said growth in passenger demand will come in at 6.2 per cent this year, which is slightly slower than the 7.2 per cent recorded in 2015.

“Markets are patchy, but overall the industry is doing a good job,” Mr Tyler said.

“There’s no doubt that over the last five years the industry has restructured, is managing itself better, is operating equipment that’s more efficient and has organised itself in a more sustainable way in terms of financial stability.”

IATA, which represents 260 airlines accounting for 83 per cent of global air traffic, expects that half the industry’s profit base will be generated from North America, with $US22.9bn reaped in the region.

Asia Pacific airlines are tipped to contribute $US7.8bn in profits and European carriers $US7.5bn.

Only the African airlines are forecast to be unprofitable, with losses of $500 million created by intense competition, political instability and poor infrastructure.

Mitchell Bingemann travelled to Dublin as a guest of Airbus and IATA.