World: Airlines set for record profit as oil cuts costs

Airlines are poised to post higher-than-expected profits this year, but the turning point investors have been dreading may be near as traffic growth slows and oil prices inch up. The IATA Thursday raised its profit forecast for the global air transport industry to a record of $39.4b for 2016 even as traffic growth is slowing and terrorist attacks hurt demand. Airlines made $35.3b last year and IATA, in December, projected $36.3b for this year. Carriers in North America are poised to lead the way in 2016 with $22.9b in net profit, IATA said. The outlook for European profit has weakened as terrorist attacks in Paris in November and Brussels in March weigh on demand. European carriers now are expected to collectively post $7.5b in profit, $1b less than anticipated six months ago. Profit growth is underpinned by the sharp drop in oil prices since mid-2014. IATA said fuel should be about 19.7% of airline costs this year, down from 33.1% in 2012-2013 and about 27% last year. “We are probably nearing the peak of the positive stimulus from low oil prices,” said Tony Tyler, the airline trade group’s CE. Airline consultant the Centre for Aviation said this week that operating margins for the world’s airlines would peak in 2016 at 8.2%, up from 7.1% in 2015. Margins are expected to retreat next year to around 7.5% as airlines introduce more planes adding downward pressure on ticket prices. After five years of profit increases the pace of growth is slowing, said Brian Pearce, chief economist at IATA. “The main worry we have is the fragility of the world economy.”<br/>