Airlines to take first profit hit since 2011 as oil price climbs
Global airline earnings are set to suffer their first annual decline in six years after reaching a record in 2016 as higher oil prices clip margins, according to the industry’s main trade group. Net income is likely to total $29.8b worldwide in 2017, the IATA said Thursday. That’s 16% lower than the $35.6b forecast for this year, a figure that itself represents a downward revision from the $39.4b estimated in June. The decline would be the first since 2011, when high fuel prices and disruption caused by the so-called Arab Spring political protests and a devastating earthquake and tsunami in Japan led earnings to fall by half. While airlines have this year been reaping record profits following a slump in the price of crude, IATA reckons a barrel of oil will average $55 in 2017, up from $44.60, lifting jet-fuel expenses to almost 19 percent of overall costs. Alexandre de Juniac, IATA’s new CEO, said the profit slide amounts to a “very soft landing” for the sector. “These three years are the best performance in the industry’s history,” De Juniac said at IATA’s annual media day in Geneva. At the same time, “risks are abundant -- political, economic and security among them. And controlling costs is still a constant battle in our hyper-competitive industry.” Though the higher oil price will squeeze earnings, airlines have improved their ability to “efficiently restructure and manage their business,” making the industry more resilient, said De Juniac, formerly CEO of Air France-KLM Group, where he clashed with unions over cost cuts. IATA pared the earnings forecast for this year because of slowing global economic growth and a 2% increase in non-fuel costs. The new 2016 estimate, still an all-time high, suggests industry profit will be $300m higher than in 2015, with a margin of 5.1% of sales, also a record. Growth in passenger traffic is set to slow to 5.1% in 2017 from an anticipated 5.9% this year, IATA said. That’s less than the expected increase in capacity, so average seat-occupancy levels will slip below 80 percent. Even so, the industry group sees fares stabilizing as worldwide gross domestic product picks up.<br/>
https://portal.staralliance.com/cms/news/hot-topics/2016-12-09/general/airlines-to-take-first-profit-hit-since-2011-as-oil-price-climbs
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Airlines to take first profit hit since 2011 as oil price climbs
Global airline earnings are set to suffer their first annual decline in six years after reaching a record in 2016 as higher oil prices clip margins, according to the industry’s main trade group. Net income is likely to total $29.8b worldwide in 2017, the IATA said Thursday. That’s 16% lower than the $35.6b forecast for this year, a figure that itself represents a downward revision from the $39.4b estimated in June. The decline would be the first since 2011, when high fuel prices and disruption caused by the so-called Arab Spring political protests and a devastating earthquake and tsunami in Japan led earnings to fall by half. While airlines have this year been reaping record profits following a slump in the price of crude, IATA reckons a barrel of oil will average $55 in 2017, up from $44.60, lifting jet-fuel expenses to almost 19 percent of overall costs. Alexandre de Juniac, IATA’s new CEO, said the profit slide amounts to a “very soft landing” for the sector. “These three years are the best performance in the industry’s history,” De Juniac said at IATA’s annual media day in Geneva. At the same time, “risks are abundant -- political, economic and security among them. And controlling costs is still a constant battle in our hyper-competitive industry.” Though the higher oil price will squeeze earnings, airlines have improved their ability to “efficiently restructure and manage their business,” making the industry more resilient, said De Juniac, formerly CEO of Air France-KLM Group, where he clashed with unions over cost cuts. IATA pared the earnings forecast for this year because of slowing global economic growth and a 2% increase in non-fuel costs. The new 2016 estimate, still an all-time high, suggests industry profit will be $300m higher than in 2015, with a margin of 5.1% of sales, also a record. Growth in passenger traffic is set to slow to 5.1% in 2017 from an anticipated 5.9% this year, IATA said. That’s less than the expected increase in capacity, so average seat-occupancy levels will slip below 80 percent. Even so, the industry group sees fares stabilizing as worldwide gross domestic product picks up.<br/>
