Profit levels and the immediate outlook have never been better for airlines.
Profitability has been on the rise since industry restructuring saw airlines first come to terms with rocketing fuel costs, then reap the benefits when – even more unexpectedly – they fell sharply.
Lower costs helped drive increased profits at those able to immediately take advantage of them, and provided a comfort blanket for the year ahead for those only seeing the gains hitting the bottom line as fuel hedges fall away. This means that even as yield pressures tighten, IATA’s outlook for 2016 is for a further improvement as airline costs fall by more than revenues.
However, much of the profit growth has been driven by a relatively small number of carriers, predominantly in North America.
FlightGlobal’s World Airline Rankings show that for a fifth consecutive year, the 10 biggest airline groups generated more than half of the total industry operating profit for the 150 biggest operators (for whom profit figures are available). The 10 biggest in 2015 made a collective operating profit of $37 billion.
The strength of North American operators continues to be a strong driver, as the four most profitable carriers last year, Delta Air Lines, American Airlines, United Airlines and Southwest Airlines, made a collective operating profit $23.3 billion. Just over half of the 15 most profitable carriers in 2015 were North American.
Despite this, during his latest outlook presentation during IATA’s AGM in Dublin at the start of June, the association’s chief economist Brian Pearce pointed to the improved spread of industry profitability.
“In 2015 there was a much wider spread of good performance,” says Pearce. “In 2014 it was really only the US carriers who were generating reasonable returns for their investors. There is now a much wider spread in Europe and Asia-Pacific of airlines that are generating the sort of returns that investors should expect.”
The 2015 figures do illustrate that more carriers from other regions are enjoying stronger profits. In 2013 the same big four US carriers and FedEx were among only seven operators to post operating profits in excess of $1 billion. Last year, 18 carriers – including eight from North America – exceeded the billion dollar profit level. Half of the remaining 10 carriers were from Asia, four from Europe and one from the Middle East.
Out of 26 leading European carriers only two recorded an operating loss in 2015 – though this does not include loss-making Alitalia or Russian carrier Transaero, which collapsed under the weight of its troubles. By contrast, there were eight loss-makers out of 25 carriers the previous year, and more than a third of Europe’s biggest carriers were in the red in 2012.
While most leading European carriers were profitable in 2015 at an operating level, for many profitability remains marginal.
Only five of the 35 carriers with double-digit operating margin were from Europe, while eight of Europe’s profitable carriers failed to muster operating margins of more than 5%.
This illustrates the extent to which bigger operators in Europe – in part reflecting consolidation in the region – are leading profitability.
In Asia-Pacific – where consolidation has still to take hold – the picture is more spread. Chinese and Japanese carriers enjoy the largest operating profits,
“We have seen a broadening of performance; we haven’t seen a financially healthy industry across all sectors,” Pearce acknowledges. “Parts of Europe and all of North America is doing really well, and delivering normal profits for investors – but there is still progress to be done elsewhere.”
Source: Cirium Dashboard
