IATA Director General and CEO, Giovanni Bisignanni, cautioned that if oil prices remain at current levels, airline costs will increase by more than the projected earnings for 2011, threatening the industry’s return to profitability (Bloomberg, 02-Jan-2011). IATA forecast in Dec-2010 that airlines would achieve a net industry profit of USD9.1 billion, at an average oil price of USD84 per barrel.
IATA warns oil prices could erode industry profits
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CAPA airline profit outlook. Record margins from capacity restraint, but upswings are not forever
This six-monthly update of the CAPA world airline operating margin model continues to expect industry margins in 2015 to 2017 above previous cyclical peaks, albeit falling slightly in 2017. This is in spite of unexceptional global GDP growth, which has not regained its long term trend rate since 2010.
The higher level of airline operating margin from a given GDP growth rate has been due to several factors. Lower oil prices have played their part, particularly since mid-2014, as does a higher level of global traffic growth than would previously have been expected from relatively sluggish GDP growth. In addition to these external issues, perhaps the most significant factor is a greater degree of capacity discipline. This is now most deeply rooted in the US, which is now by far the most profitable airline region, helping to drive the global result.
On a more cautionary note, the IMF has recently cut its global GDP forecasts, citing Brexit and other geopolitical risks. In addition, profit warnings in recent weeks from IAG, easyJet and Lufthansa are a reminder that cyclical upswings do not last forever. A test of the airline industry's improved profitability will be its resilience in a downturn.
LCCs in Latin America: Peru’s rise as an economic star could draw attention from potential operators
As Latin America attempts to climb out of a two year long recession, Peru has emerged as a bright spot in the region – based on air passenger growth and the country’s economic performance. For the seven months ending Jul-2016 Peru recorded 9% passenger growth to 11.2 million, driven by growth of 10.2% in the country’s domestic market.
Peru’s air passenger growth continues to remain promising, as the country’s largest airline – LATAM Airlines Peru – calculates that the country’s trips per capita are slightly below the still-emerging markets of Mexico, Colombia and Brazil, whose passenger growth potential should remain robust once the country’s economy begins to fully recover.
Periodically speculation arises over the potential opportunity for a low cost airline to break into Peru’s market. The country’s growth prospects certainly warrant examination of stimulative opportunities in Peru, but so far the country lacks a true low cost airline.