CAPA airline profit outlook: bad news and good

The latest six monthly update of the CAPA world airline industry operating margin model lowers its forecasts for margins in 2018 and 2019. This partly reflects a downward revision to the margin reported by IATA figure for 2017 but, more importantly, reflects an increase in the oil price outlook.

The model reiterates the previous conclusion that the world airline industry's operating margin cycle peaked in 2016. However, if downward revisions to forecasts and falling margins are the bad news, there is also some good news in the airline industry's profit outlook.

The good news is that the current airline cycle is looking better than any other since the dawning of the jet age. Operating margins, even as they move into a downswing, look set to remain above levels that were associated with peaks in previous cycles. Whereas historic cycles tended to peak at an operating margin of around 6% before fairly quickly falling, the current cycle could record at least five consecutive years of margins at levels comfortably above previous cyclical peaks in 2015-2019.