While record profits in a low-growth economy suggest airlines have gone some way to successfully decoupling their financial fortunes from economic growth, the IATA believes fragility of the latter remains the biggest to derailing the industry's strong profit run.
IATA today during its AGM in Dublin raised its industry profit outlook for 2016 by a further $3 billion to $39.4 billion. It also increased its 2015 industry profit to $35.3 billion.
If the industry financial performance plays out as IATA projects, it would continues the rapid profit growth the industry has enjoyed since coming out of global financial crisis.
"There has been some decoupling of air travel growth and industry financial performance in recent years," notes IATA chief economist Brian Pearce, during a briefing at the AGM in Dublin today.
"One of the features of the IMF's growth forecasts [over recent years] is they have continued to anticipate economic growth to accelerate to 3% and above, but it doesn't happen like that and they continue to push that out. Essentially the world seems to be stuck in a relatively slow-growth path between 2% and 3%. I think this means the industry's performance is impressive. Its performed very well despite, what many people call the 'new-norm' of lower economic growth.
"And while the IMF has been revising downwards its forecast for global economic growth, IATA has been having to revise up our forecast for global traffic growth over that same period," he says. "The result is air [passenger] travel volumes have been growing well above trend in the past three or four years."
On the possible risk of over-capacity, fueled by lower oil prices, Pearce see little evidence of it impacting performance. "At the moment we are not seeing any signs we are returning to the old days of very cyclical profitability. Load factors are still very high. We are seeing them come off their peak, but we are still expecting to see load factors for 2016 of 80%. And remember breakeven load factors are likely to fall further because of the impact of fuel pricing and fuel hedging."
But for all its efforts to decouple fortunes from the economy, Pearce still sees the economy as the key factor. "I think the main worry we have is the fragility of the world's economy. As well as the industry has done to decouple itself to some extent from that....its still quite difficult for the industry to do well in difficult conditions, so that's what worries us the most," he says.
"But what we've seen, particularly from airlines in North America, that they have been strengthening their balance sheets and business models to deliver in a weaker environment," he adds.
Source: Cirium Dashboard
