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Airlines Forecast to Make Bigger 2016 Profit Than Expected

Industries Reuters

Global airlines should make more money than previously expected this year, the International Air Transport Association (IATA) said on Thursday, helped by low oil prices and work by airlines to fill planes and drive ancillary revenues.

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IATA said it forecast net profit of $39.4 billion for the industry this year, against a previous $36.3 billion estimate, with more than half generated by North American carriers.

That would be the fifth straight year of improving profits and give a net profit margin of 5.6 percent, while the industry's return on capital is also expected to exceed the cost of capital for only the second time, a boost for investors.

IATA head Tony Tyler said airlines had improved profits by becoming better at filling planes and driving extra revenues. Meanwhile, fuel is expected to represent just under 20 percent of expenses this year, down from a 33 percent high in 2012-2013.

"Lower oil prices are certainly helping, though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices," Tyler said at the association's annual meeting in Dublin.

However, the picture was mixed across the globe, with Latin American economies have hurt by the fall in oil prices and the region's carriers seeing hardly any decline of fuel costs due to slumping exchange rates, Tyler added.

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Overall, yields, how much a airline makes per passenger per mile carried will drop 7 percent this year, but unit costs will fall faster, by 7.7 percent, IATA forecast.

Tyler said profits were becoming more normal but there was still room for improvement.

"It will, however, take a longer run of profits before balance sheets are returned to full health," he added.

(Editing by Maria Sheahan and Alexander Smith)