Another Strong Year for Airline Profits in 2017 - African Business Magazine
Close
Another Strong Year for Airline Profits in 2017

Another Strong Year for Airline Profits in 2017

The International Air Transport Association (IATA) announced that it expects the global airline industry to make a net profit in 2017 of $29.8 billion. On forecast total revenues of $736 billion, that represents a 4.1% net profit margin. This will be the third consecutive year (and the third year in the industry’s history) in which airlines will make a return on invested capital (7.9%) which is above the weighted average cost of capital (6.9%).

IATA revised slightly downward its outlook for 2016 airline industry profitability to $35.6 billion (from the June projection of $39.4 billion) owing to slower global GDP growth and rising costs. This will still be the highest absolute profit generated by the airline industry and the highest net profit margin (5.1%).

“Airlines continue to deliver strong results. This year we expect a record net profit of $35.6 billion.  Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8 billion. That’s a very soft landing and safely in profitable territory. These three years are the best performance in the industry’s history—irrespective of the many uncertainties we face. Indeed, risks are abundant— political, economic and security among them. And controlling costs is still a constant battle in our hyper-competitive industry,” said Alexandre de Juniac, IATA’s Director General and CEO.

“We need to put this into perspective. Record profits for airlines means earning more than our cost of capital. For most other businesses that would be considered a normal level of return to investors. But three years of sustainable profits is a first for the airline industry. And after many years of hard work in restructuring and re-engineering the business the industry is also more resilient. We should also recognize that profits are not evenly spread with the strongest performance concentrated in North America,” said de Juniac.

2017

While airline industry profits are expected to have reached a cyclical peak in 2016 of $35.6 billion, a soft landing in profitable territory is expected in 2017 with a net profit of $29.8 billion. 2017 is expected to be the eighth year in a row of aggregate airline profitability, illustrating the resilience to shocks that have been built into the industry structure. On average, airlines will retain $7.54 for every passenger carried.

Expected higher oil prices will have the biggest impact on the outlook for 2017. In 2016 oil prices averaged $44.6/barrel (Brent) and this is forecast to increase to $55.0 in 2017. This will push jet fuel prices from $52.1/barrel (2016) to $64.9/barrel (2017). Fuel is expected to account for 18.7% of the industry’s cost structure in 2017, which is significantly below the recent peak of 33.2% in 2012-2013.

The demand stimulus from lower oil prices will taper off in 2017, slowing traffic growth to 5.1% (from 5.9% in 2016). Industry capacity expansion is also expected to slow to 5.6% (down from 6.2% in 2016). Capacity growth will still outstrip the increase in demand, thus lowering the global passenger load factor to 79.8% (from 80.2% in 2016).

The negative impact of a lower load factor is expected to be offset somewhat by a strengthening of global economic growth. World GDP is projected to expand by 2.5% in 2017 (up from 2.2% in 2016). Along with structural changes in the industry, this is expected to help stabilize yields for both the cargo and passenger businesses. This is a welcome development as yields (calculated in dollar terms) have fallen each year since 2012.

There is some optimism over the prospects for the cargo business in 2017. The break in falling yields and a moderate uptick in demand (3.5%) will see cargo industry volumes reach a record high of 55.7 million tonnes (up from 53.9 million tonnes in 2016). Industry revenues are expected to rise slightly to $49.4 billion (still well below the $60 billion level of annual revenues experienced in 2010-2014). Trading conditions remain challenging.

“Connectivity continues to set new records. We expect nearly 4 billion travelers and 55.7 million tonnes of cargo in the coming year. And almost 1% of global GDP is spent on air transport—some $769 billion. Air transport has made the world more accessible than ever and it is a critical enabler of the global economy,” said de Juniac.

“Governments, however, do not make aviation’s work easy. The global tax bill has ballooned to $123 billion. Over 60% of countries put visa barriers in the way of travel. And the total number of ticket taxes exceeds 230. Billions of dollars are wasted in direct costs and lost productivity as a result of inefficient infrastructure. These are only some of the hurdles which confront airlines. Our aim is to work in partnership to help governments better understand and fully maximize the social and economic benefits of efficient global air links,” said de Juniac.

2017 Regional Analysis

North American carriers : The strongest financial performance is being delivered by airlines in North America. Net post-tax profits will be the highest at $18.1 billion next year, although down slightly from the $20.3 billion expected in 2016. The net margin for the region’s carriers is also expected to be the strongest at 8.5% with an average profit of $19.58/passenger. In 2017 capacity offered by the region’s carriers is expected to grow by 2.6%, slightly outpacing expected demand growth of 2.5%. Recent consolidation continues to underpin the region’s strong profitability, even as the region faces upwards cost pressures which include the price of fuel.

European carriers : Airlines based in Europe are expected to post an aggregate net profit of $5.6 billion in 2017 which is below the $7.5 billion for 2016. Nonetheless, carriers there are forecast to generate a 2.9% net profit margin and a per passenger profit of $5.65. There remains a significant gap between the performance of the region’s carriers and the performance of North American ones. Capacity in 2017 is expected to grow by 4.3%, ahead of demand growth which is forecast at 4.0%. The region is subject to intense competition and hampered by high costs, onerous regulation and high taxes. And terrorist threats remain a real risk, even if confidence is starting to return after the tragic incidents in recent times.

Asia-Pacific carriers : Airlines in the Asia-Pacific region are expected to generate a net profit of $6.3 billion in 2017 (down from $7.3 billion in 2016) for a net margin of 2.9%. On a per passenger basis average profits are anticipated to be $4.44. Capacity offered by the region’s carriers is forecast to grow by 7.6%, ahead of a forecast growth in demand of 7.0%. Improved cargo performance is expected to offset rising fuel prices for many of the region’s airlines. The expansion of new model airlines and progressive liberalization in the region is intensifying already strong competition. In addition profitability varies widely across the region.

Middle Eastern carriers : Middle Eastern airlines are forecast to generate a net profit of $0.3 billion for a net margin of 0.5% and an average profit per passenger of $1.56. This is below the $900 million profit expected in 2016. Average yields for the region’s carriers are low but unit costs are even lower, partly driven by the strong capacity expansion, forecast at 10.1% this year, ahead of expected demand growth of 9.0%. Threats are emerging to the success story of the Gulf carriers, including increases in airport charges across the Gulf States and growing air traffic management delays.

Latin American carriers : Latin American airlines are expected to post a net profit of $200 million, which is slightly lower than the $300 million forecast for 2016. Profit per passenger is expected to be $0.76 with a net profit margin of 0.7%. Capacity offered by the region’s carriers is forecast to grow by 4.8% which is ahead of expected demand growth of 4.0%. Despite some signs of improvement in the region’s currencies and economic prospects, operating conditions remain challenging, with infrastructure deficiencies, high taxes, and a growing regulatory burden across the continent. Venezuela continues to block the repatriation of some $3.8 billion of industry funds in contravention of international obligations.

African carriers : Carriers in Africa are expected to deliver the weakest financial performance with a net loss of $800 million (broadly unchanged from 2016). For each passenger flown this amounts to an average loss of $9.97. Capacity in 2017 is expected to grow by 4.7%, ahead of 4.5% demand growth. The region’s weak performance is being driven by regional conflict and the impact of low commodity prices.

2016

2016 will be a record year for industry profitability. The expected net profit of $35.6 billion is slightly ahead of the $35.3 billion recorded in 2015, as is the 5.1% net profit margin (slightly ahead of the 4.9% recorded for 2015).

The modest revision from previous expectations largely is owing to two factors:

  • Slower global GDP growth: 2.2%, which was below mid-year expectations of 2.3% growth.
  • Non-fuel unit costs increased by 2.0% in 2016. 

The Business of Freedom 

“Air transport is the business of freedom. The safe and efficient global movement of goods and people is a positive force in our world. Aviation’s success betters peoples’ lives by creating economic opportunity and supporting global understanding. We must stand firm in the face of any rhetoric that would put limits on aviation’s future success,” said de Juniac.

Some key indicators of the strength of global connectivity include:

  • The average return airfare in 2017 is expected to be $351 (2015 dollars), which is 63% below 1995 levels.
  • Average air freight rates in 2017 are expected to be $1.48/kg (2015 dollars) which is a 68% fall on 1995 levels.
  • The number of unique city pairs served by aviation grew to 18,429 in 2016, a 92% increase on 1995.
  • The value of trade carried by air transport in 2017 is expected to be $5.7 trillion, a 4.9% increase on 2015. Air cargo accounts for around 35% of the total value of goods traded globally.
  • The global spend on tourism enabled by air transport is expected to grow by 5.1% in 2017 to $681 billion.
  • Supply chain jobs supported by aviation are expected to grow by 3.4% in 2017 to some 69.7 million worldwide.
  • Airlines are expected to take delivery of some 1,700 new aircraft in 2017, around half of which will replace older and less fuel-efficient aircraft. This will expand the global commercial fleet by 3.6% to 28,700.
  • Airlines are expected to operate 38.4 million flights in 2017, up 4.9%.
Distributed by APO on behalf of International Air Transport Association (IATA).

Media files
International Air Transport Association (IATA)
Download logo

Rate this article

Author Thumbnail
Written by African Business Magazine

African Business and its award-winning team is widely respected for its editorial excellence. We provide the all important tools enabling you to maintain a critical edge in a continent that is changing the world. Our special reports profile a wide range of sectors and industries including Energy, Oil and Gas, Aviation, Agriculture to name but a few.

Related Posts

  • U.S. Condemns Terror Attack in Al-Arish

    The U.S. Embassy condemns the attack in Al-Arish today that killed several Egyptian police officers and wounded many others, including civilians. These officers gave their lives in the line of duty helping protect their fellow citizens. We express our deepest condolences to the families and friends of the deceased and wish the wounded a speedy recovery. The Embassy stands with Egypt and the Egyptian people as they build a stable, secure, and prosperous country for all citizens.

    Distributed by APO on behalf of U.S. Embassy – Cairo.

    Media files
    U.S. Embassy - Cairo
    Download logo

  • A world-class wheelchair basketball coach to train the team of South Sudan

    At the invitation of the International Committee of the Red Cross (ICRC), Jess Markt, a wheelchair basketball coach for people with disabilities is coming from the United States, and will arrive in Juba on January 10, 2017 to coach players, train coaches, classifiers and referees from Juba and Yirol.  
     

    Jess began playing wheelchair basketball at the age of 19 after suffering a spinal cord injury. He has been coaching wheelchair basketball since 2009, and has trained teams in Afghanistan, India, Palestine, Cambodia and in his home state of Colorado.

    “We are excited that Jess will coach the South Sudan team. They are very motivated and we hope that this training will enable them to participate in international competitions in future” says Venkatakannan Packirisamy, ICRC Physical Rehabilitation Project manager in South Sudan.

    In South Sudan the ICRC supports three physical rehabilitation centers that provide mobility devices and therapy. Together with the South Sudan Wheelchair Basketball Association (SSWBA) it organizes weekly wheelchair basketball games to promote social inclusion for people with disabilities. 

    Distributed by APO on behalf of International Committee of the Red Cross (ICRC).

    Media files
    International Committee of the Red Cross (ICRC)
    Download logo

  • Finalists for the Africa Finance & Investment Forum (AFIF) Entrepreneurship Award 2017 announced

    Six African SMEs have been nominated as finalists for the AFIF Entrepreneurship Award 2017, supported by the Rabobank Foundation. Out of the 51 projects from around the continent and following a few rounds of selection, the jury has selected these innovative projects from Ethiopia, Kenya, Nigeria and Tanzania for their social, economic and ecological impact, and their potential for growth and job creation nationally and regionally. The winner will be announced during the Africa Finance & Investment Forum (AFIF) 2017 (http://APO.af/y28Bux), which will be held in Nairobi from 13-16 February. 

    Official Finalists for the AFIF Entrepreneurship Award 2017:

    • Aybar Engineering (Ethiopia) – The company has developed the “Aybar BBM”, a technology that prevents excess water from suffocating crops and stores it for later use. There is no other similar technology in the market.  
    • R n G Company limited (Kenya) – The company sells packaged Rhizo-fix (groundnut inoculum), a biofertilizer that ensures a more efficient groundnut production. It also collects the groundnuts from local farmers to produce affordable cooking oil.
    • EuroFresh Exotics (Kenya) – The company produces and exports fresh fruits and vegetables using innovative farming techniques. They also organise capacity building trainings for smallholder farmers.
    • First Atlantic Semiconductors & Microelectronics (Nigeria) – This company has developed the “Zenvus”, an intelligent solution to collect soil data using a system of electronic sensors. Its mission is improve farming productivity.
    • Kimolo Super rice (Tanzania) – The company is specialized in processing and marketing branded rice and sunflower oil. The project is environmentally friendly since smallholder farmers produce paddy using water run-off from nearby hills.
    • Eco Act (Tanzania) – The company was established to address the challenges of urban waste management, plastic pollution, deforestation and climate change. They recycle and transform post-consumer waste plastic into durable and environmentally friendly plastic lumber.

    The AFIF Entrepreneurship Award 2017 aims to provide African-based innovative SMEs with support to grow their businesses. The six finalists will receive a free accreditation to join the AFIF 2017 full programme (http://APO.af/JM5nx8) (conferences, trainings, B2B meetings and networking opportunities). The award winner will receive cash prize and one year of national and international media promotion.

    “We are delighted to announce the finalists for the AFIF Entrepreneurship Award 2017 after a really difficult selection process. The innovation and creativity of African-based SMEs makes our job more difficult every year. We look forward to welcoming these and many more entrepreneurs at the AFIF 2017 in Nairobi” says Inês Bastos, EMRC (www.EMRC.be) Senior Project Manager.

    “I am now internationally known,” says Lazaro Mwakipesile (Raphael Group, Tanzania), winner of the AFIF Entrepreneurship Award 2015. He adds: “I have travelled abroad four times this year to present our company. I expect to travel to the United States soon for a meeting with the Bill and Melinda Gates Foundation”.

    The new edition of the Africa Finance & Investment Forum (AFIF) will be held for the first time in the vibrant city of Nairobi, Kenya, hosted by the Strathmore University. In line with growing international trends, the AFIF will focus on entrepreneurship, innovation and access to finance in key sectors such as energy, water, ICT, health and agriculture. Delegates (SMEs managers, investors, entrepreneurs…) will come from across the world to participate in the AFIF 2017.

    Distributed by APO on behalf of EMRC.

    For further information about the AFIF Entrepreneurship Award 2017, visual material or interviews, please contact: 
    Aretha Francis 
    Media and Communications Manager
    AF@EMRC.be  
    +32 2 626 1510

    Press Accreditation AFIF 2017:
    If you wish to cover the Africa Finance and Investment Forum 2017 (13-16 February 2017, Nairobi), please send the request to AF@EMRC.be indicating Name, Country and Media Outlet by 23 January.

    Social Media – Follow us on: 
    Twitter: https://twitter.com/#!/_EMRC_ 
    Facebook: www.Facebook.com/EMRC.International  
    LinkedIn: www.LinkedIn.com/company/emrc   

    About EMRC:
    Established in 1992 in Brussels, EMRC (www.EMRC.be) is a non-governmental organisation composed of a network of entrepreneurs, financiers, consultants and officials based throughout the world. EMRC’s mission is to lead the private sector in Africa to sustainable economic development and to drive regional change via partnerships. 

    About AFIF:
    The Africa Finance & Investment Forum (AFIF) (http://APO.af/y28Bux) is an annual business event organized in the framework of EMRC International’s activities, aimed at strengthening the private sector in Africa, encouraging entrepreneurship and attracting investment to the African continent. AFIF has a double objective: to strengthen the financial capacities of Africa’s private sector and to promote the creation of new partnerships through the encouragement of joint projects and trade relations North-South & South-South.

    Media files
    EMRC
    Download logo

  • USAID Support to ISTEP Program Gets People with Disabilities into the Workplace

    Over the past three years, the United States Agency for International Development (USAID) supported the Ethiopian Center for Disability and Development (ECDD) Association to help hundreds of people with disabilities to prepare for and enter the workforce. The Inclusive Training and Employment Program for and by persons with disabilities, also known as ISTEP, was designed to bolster Ethiopia’s efforts to support disability inclusive development.

    Because the inclusion of people with disabilities into the workforce is a relatively new concept in Ethiopia, ISTEP addressed the challenges faced by both the prospective employees and potential employers. To better prepare prospective employees with disabilities, ISTEP worked with 21 mainstream Technical Vocational Education and Training institutes (TVETs) and universities to improve their institutional capacity to provide skills development training for people with disabilities and trained approximately 750 instructors and support staff. Several of these institutions are now making campuses more accessible to people with disabilities. With support from ISTEP, nearly 300 people with disabilities were enrolled in TVETs and received skills training in areas including food preparation, making leather products, construction and metal works. ECDD also helped job seekers with disabilities to be stronger job candidates by helping them to prepare resumes and get ready for interviews.

    ISTEP also worked with the City Administrations in Addis Ababa and Dire Dawa, as well as the regional administrations in Tigray and SNNPR to create a more enabling environment for self and formal employment of people with disabilities. The program then worked with more than 70 companies to encourage them to take on people with disabilities for internships and paid positions and to train their human resources staff on best practices for integrating people with disabilities into their workplaces. So far, 88 TVET and university graduates with disabilities have secured formal jobs with employers like the Mosaic Hotel and Kedir Yasin Metal Work PLC, while another 168 have received valuable hands-on experience through internship placements in private and public sector workplaces. In addition, 93 TVET graduates with disabilities received support to start their own individual or joint businesses.

    “Before I began work, people did not want to even shake my hand, as if my blindness would pass on to them. But the situation changed after I got employed – there was a complete change of attitude. I feel my pride restored and feel respect in the community because of what I have achieved.’’ Lukas Zida, Counselor at Otana High School in Wolayta Sodo and an ISTEP beneficiary.

    Companies or organizations interested in partnering with ECDD can contact Mr. Retta Getachew, the Executive Director of ECDD at: ECDD, P.O Box, 1530 Code 1250, Addis Ababa, Tel: +251-11-4700014. Email: info@ecdd-ethiopia.org, Retta-G@ecdd-ethiopia.org.

    Distributed by APO on behalf of U.S. Embassy Addis Ababa, Ethiopia.

    Media files
    U.S. Embassy Addis Ababa, Ethiopia
    Download logo

  • Latest News portal telling Africa’s story launches in Accra, Ghana

    A new pan-African news portal www.AfricaFeeds.com has been launched in Accra, Ghana.

    The portal will provide readers in Africa and beyond the latest and relevant news about Africa and the world in general.

    Readers of the site get at first hand, content on latest breaking news about Africa in all areas including entertainment, business and sports, with special focus on all the sub-regions on the continent.

    Founder and CEO of Africa Feeds Media, owners of the news portal, Isaac Kaledzi said the desire to tell the story of Africa the best way, motivated the establishment of the portal.

    He said in Accra that “I believe the story of Africa must be told and told better than we do currently. The African story must be told, not just the unfortunate happenings of war and hunger but the struggles and efforts by ordinary individuals to make this Continent great and that is exactly what we want to do with this news portal”.

    “African journalists work hard under challenging conditions and deserve an independent platform to share what they see and observe with the rest of the world in an unbiased and fair manner” Mr. Kaledzi added.

    Readers can access the portal via their mobile phones, tablets and desktops with 24/7 news services. An Africa feeds TV Channel is to be launched in the coming months to provide a 24/7 news TV content to Africans and the rest of the world at large.

    Mr. Kaledzi said “This is a huge project but we are confident that this is the way to go, we must provide a platform that enables the African to tell his or her own story and also for the African to know what is happening on his or her continent from the African perspective without perceived foreign influence”.

    AfricaFeeds(dot)com, a subsidiary of the Africa Feeds Media group is funded through commercial revenues and officially started operations on November 3, 2016.

    Distributed by APO on behalf of Africa Feeds.

    Media files
    Africa Feeds
    Download logo

  • Infertility is Not a Stigma: Merck More than a Mother championed by Nigeria’s First Lady, Mrs. Aisha Buhari continues its quest to empower more infertile women; this time in Nigeria

    Merck More than a Mother campaign launched in Nigeria was championed by the country’s first lady, Her Excellency Mrs. Aisha Buhari. The launch held in Abuja, Nigeria is in partnership with Senate Commission on Health; Ministry of Health; Ministry of Women Affairs and Social Development and Future Assured organization.

    Merck More than a Mother continues its commitment to break stigma around infertility and empower infertile women by improving access to information, education, healthcare and change of culture and mind-set to de-stigmatize infertility.

    Her Excellency Mrs. Buhari pledged her support and the support of Nigerian Governors’ wives in the implementation of Merck More than a Mother’s activities in Nigeria focusing on eliminating infertility stigma and creating awareness and providing information and education on causes of infertility; facilitating access to healthcare; and economic and social empowerment of infertile women.

    The Nigerian women leaders also supported the empowering of infertile women who form a vulnerable part of the population. Infertile women in Nigeria and many other African countries who can no longer be treated have been empowered socially and economically to lead independent and happier lives through Empowering Berna initiative. Empowering Berna is part of Merck More than a Mother campaign.

    Helen Phillip, a Nigerian woman from the North shared her story of suffering from infertility stigma and expressed her gratitude to the support Merck more than a Mother provided her through establishing new business so that she can become an independent productive member in her community.

    Watch Nigeria’s infertile women sharing their stories of social suffering of infertility stigma and their transformation after the economic and social empowerment provided by Merck more than a Mother through Empowering Berna project:

    “In Nigeria we have been advocating for the end of harmful traditional practices including the stigmatization of women which is prevalent all over the country. Women have not been coming out openly because they are traumatized. With this campaign we will encourage them to speak out and we pledge our support and collaboration,” said Hon. Aisha Alhassan, Nigeria’s Minister of Women Affairs and Social Development. 

    Merck More than a Mother campaign is a great initiative to break the stigma around infertility and to empower an unprivileged category of women in Africa, women who suffer infertility. Infertile women have been neglected, mistreated and discriminated because they cannot bear a child, yet 50% of infertility is due to male factors. We can together improve access to education, information, awareness, health care and change of mind-set and culture to stop these women’s suffering,” said Dr. Rasha Kelej, Chief Social Officer, Merck Healthcare.

    Prof. Isaac Adewole Hon. Minister of Health emphasized: “We are responsible for policy at the Ministry level and this is where we can make a difference in improving access to fertility care in Nigeria. We will work through training institutions we are responsible for to strengthen fertility management by making it a sub-specialty. We will also as a Ministry work with private sector, the Senate and the National Assembly to improve governance and quality of care to provide standards to protect infertile men and women seeking treatment.”

    Merck More than a Mother was first implemented in Kenya in 2015 followed by Uganda, Cote d’Ivoire, Central African Republic and Nigeria.

    To read more about Merck More than a Mother, visit www.MerckMoreThanAMother.com and www.Merck-CAP.com

    Distributed by APO on behalf of For Africa Forever.

    Media Contact:
    Lucy Kaaya
    Chief Editor 
    ForAfricaForever@gmail.com

    About the stigma of infertility in Africa:
    Jackeline Mwende, the recent victim of Infertility stigma tells us her story of suffering of Iterrible violence by her husband. Merck more than a Mother committed to work hard to ensure that no other woman would suffer the same way Jackeline did. Watch her story (https://www.youtube.com/watch?v=niMNO-jz0yA&t=37s).

    Media files
    For Africa Forever
    Download logo

    Multimedia content

Join our mailing list

If you would like Independent, Informative and Invaluable news analysis on the African continent, delivered straight to your inbox, join our mailing list.

Help us deliver better content