Global airline industry set for record earnings in 2015

  • A 40% drop in oil prices and an ever growing demand for travel are set to deliver record profits for the world’s airlines in 2015.  The stimulus to air travel from lower fares, more city-pair connections and stronger economic growth is expected to produce the fastest-growing air travel market since 2010.
  • In 2014 the airline industry is estimated to have returned record profits of $19.9 billion (up from the $18.0 billion projected in June), with the expectation that net profit in 2015 will grow to $25 billion, according to the International Airline Industry Association (IATA).
  • Passenger traffic is set to grow 7%, exceeding 3.5 billion for the first time.  Revenue is projected to increase by 4% to $783 billion in 2015 to deliver the best ever return in absolute profit on a net margin of 3.2%. On a per passenger basis, IATA estimates that airlines will make a net profit of $7.08 in 2015, up on the $6.02 earned in 2014 and more than double the $3.38 earnings per passenger achieved in 2013.
  • Oil, which typically accounts for more than a quarter of airline costs, is currently running at just below €50 a barrel of Brent crude.  IATA projections are based on an average crude-oil barrel price of $85, the first time it will have averaged under $100 since 2010.
  • “It’s getting better,” says IATA chief economist Brian Pearce.  “The fall in oil prices is going to mean better times for passengers, shippers and also investors.  I think we are going to see an improvement in profitability, and we think on average we are going to see investor returns on capital of about 7%.”  After adjusting for inflation, average return airfares (excluding taxes and surcharges) are expected to fall by some 5.1% on 2014 levels and cargo rates are expected to fall by a slightly bigger 5.8%.
  • While all regions of the world are forecast to report improved net profitability in 2015 over 2014, there are stark differences in profitability across airlines based on both sides of the Atlantic.  North American airlines are expected to deliver the strongest financial performance with net post-tax profits at $13.2 billion in 2015 (up from $11.9 billion in 2014).  That represents a net profit of $15.54 per enplaned passenger, a marked improvement from just three years earlier.  European airlines continue to lag their transatlantic counterparts due to economic, regulatory and structural issues forcing them to achieve the highest breakeven load factors in the world.  The European airline industry is expected to deliver net profits of $4 billion next year (up from $2.7 billion in 2014) representing only $4.27 per passenger and a net profit margin of 1.8%. However, within Europe there is a stark contrast between the performance of low cost carriers and traditional legacy carriers.  The skies of Europe are dominated on short haul routes by the low cost airlines, predominantly Ryanair and easyJet.  Consolidation within the legacy sector has led to Europe’s big-three network carrier groups – IAG, Lufthansa, and Air France-KLM.  Of the three, IAG has emerged as the most efficient and profitable having successfully addressed labour and other cost issues at Iberia, while its competitors have continued to struggle with industrial unrest over recent months.
  • The airline business closer to home.
    Ryanair looks set to turn in a record profit of between €810 million and €830 million for the financial year ending March 31, 2015 from carrying just over 90 million passengers. This is based on a better than expected first half year performance and forward bookings.  The airline which continues to expand, is courting business travellers by moving into the main airports in many cities and projecting a more customer friendly image.  On the back of the performance its share price has hit new record levels over recent months and has just recorded a market cap in excess of €14 billion. The airline currently operates more than 1,600 daily flights from 72 bases connecting 189 destinations in 30 countries with a fleet of more than 300 Boeing 737-800 aircraft. It continues to pursue growth strategies backed by orders for a new and expanded fleet of efficient aircraft.  The company targets to carry almost 90 million passengers this year and 150 million passengers in 2024.Ryanair continues to be the No.1 short haul airline serving Ireland, providing 47% of short haul capacity to/from Irish airports to points in Britain and mainland Europe.Its main rival, easyJet, has also had a good year flying 64.8 million passengers in the year to 30 September 2014 and returning a record profit before tax of £581m which was reflected in a share price rise.  While the airline does not serve airports in the Republic it is the No.1 carrier serving Belfast, providing almost 50% of capacity to/from Northern Ireland.News prior to Christmas of a bid for Aer Lingus from IAG has drawn attention to the very much improved performance of the national carrier.  They reported record passenger numbers of over 11 million for 2014, and an impressive load factor of 79% for the year.  The carrier reported a Q3 operating profit up 19% to €113 million and a 30% growth in net cash balance to €572 million.  Profit for the year is expected to come in at over €60 million.  The driver of improved performance has been the strategy of growing its transatlantic services, not only catering to US and Ireland originating demand, but more critically by creating a new fast growing transatlantic demand from Britain and Europe via Dublin to sustain the expansion.  The airline will follow a 28% increase in peak capacity on North American routes in summer 2014 with a further 12.5% increase in 2015.  Most commentators expect that IAG will follow up with an improved offer for Aer Lingus, following the resolution of the pension deficit and a much anticipated ruling from the British authorities on Ryanair’s share holding in its competitor airline.  Meanwhile the share price has hit a new high.

    Currently Aer Lingus provides over 50% of transatlantic lift to/from Ireland and 42% of short haul capacity to/from Irish airports. The outcome of any change in ownership could have implications for Irish tourism.

  • An overview of scheduled airline summer services to/from Ireland.
    Capacity planned for summer 2015 will see at least 15,000 extra seats added to the 370,000 seats per week on scheduled air services into Ireland last summer. Aer Lingus and Ryanair will provide upwards of 80% of the capacity on offer.Growth will be more marked on transatlantic services with Aer Lingus adding a Washington service and increasing capacity on New York, Boston, San Francisco and Orlando routes, while United is launching a new service from Chicago to Dublin. In addition, Delta and American are each increasing capacity.From mainland Europe Ryanair, Aer Lingus, Lufthansa and SAS are each expanding their operations, while new entrants Vueling, Finnair, Transavia and WOW will launch new services. Ethiopian Airlines will provide the first non-stop service from sub-Saharan Africa with onward service to Los Angeles. Capacity on cross-channel routes will see some changes with new Aer Lingus Regional services and some frequency and capacity adjustments on high density routes from London and other main gateways in Britain.   Meanwhile Etihad and Emirates will each maintain double daily departures on services to their hubs in the Middle East.
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