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America leads way as airlines grab profit after tax

December 19, 2016 Headline News No Comments Email Email

Airlines face over 230 separate ticket taxes around the world, adding up to a total annual tax bill of USD 123 billion – but they continue to make a profit, with carriers in the Asia-Pacific region expected to earn an average of almost AUD 6 for each passenger carried during 2017.

The figures come from data newly released by the International Air Transport Associaton (IATA).

IATA’s 2017 regional analysis puts North American carriers at the top of the list in terms of financial performance, but other regions are also doing well.

North American carriers: The strongest financial performance is being delivered by airlines in North America. Net post-tax profits will be the highest at USD 18.1 billion next year, although down slightly from the USD 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 USD 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 upward cost pressures which include the price of fuel.

European carriers: Airlines based in Europe are expected to post an aggregate net profit of USD 5.6 billion in 2017 which is below the USD 7.5 billion for 2016. Nonetheless, carriers there are forecast to generate a 2.9% net profit margin and a per passenger profit of USD 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%. 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 USD 6.3 billion in 2017 (down from USD 7.3 billion in 2016) for a net margin of 2.9%. On a per passenger basis average profits are anticipated to be USD 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%. 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 USD 0.3 billion for a net margin of 0.5% and an average profit per passenger of USD 1.56. This is below the USD 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%. 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 USD 200 million, which is slightly lower than the USD 300 million forecast for 2016. Profit per passenger is expected to be USD 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 USD 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 USD 800 million (broadly unchanged from 2016). For each passenger flown this amounts to an average loss of USD 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.

Edited by Peter Needham

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