CAPA airline profit outlook: 2016 was top of cycle, but margins to stay above past cyclical peaks

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The CAPA world airline industry operating margin model forecasts that margins will fall from 2016 to 2018, suggesting that the estimate of 8.3% in 2016 may have been a cyclical peak. This six monthly update of CAPA's world airline profit outlook, which adds 2018 to the model for the first time, attributes the expected declining margin trend to increases in oil prices and in the rate of fleet growth.

Moreover, although global economic growth is forecast by the IMF to pick up in each year from 2016 to 2018, there are many uncertainties surrounding the world economy. The IMF's Jan-2017 outlook warns that risks to global growth are skewed to the downside.

However, previous cyclical peak margins did not exceed 6%, and the CAPA model forecasts that the industry's operating margin will remain higher than this throughout the forecast period, provided that the downside risks to the global economy do not materialise. Putting the forecast into a historical context - the world's airline industry is set to remain in a period of unprecedentedly high profitability, at least until 2018.

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