Airline profitability: witness to a structural improvement?

IATA's latest financial forecast for the world's airlines, published on 23-Sep-2013, looks into 2014 for the first time. If IATA is right, next year will see the industry's second highest operating margin since 1999 and will be its fifth successive year of positive net profit. This would be an unprecedented sequence this century.

It is tempting to point to history and to conclude that this means another down-swing in the airline profit cycle cannot be too far away.

However, although the industry is not yet covering its cost of capital, there is cause for moderating the cynicism traditionally developed by observers of the industry's financial performance. It seems that airlines are achieving better margins than in the past from current levels of world GDP growth and that they are achieving better margins than might be predicted by our Capacity Index (a measure of overall fleet capacity utilisation). Are we witnessing a structural improvement in world airline profitability?