CAPA World Airline Profit Outlook 2016: margins at a new high of 8.2%. Fertile ground for new entry

The airline industry was more profitable in 2015 than it has been for almost five decades, according to the Jan-2016 update to CAPA's global operating margin model. And it doesn't stop there. CAPA's base case scenario projects world airline operating margins rising further above previous historic peak levels in 2016. These new levels of profitability are thanks to the low oil price environment, now expected to continue this year, coupled with strong demand growth in spite of global economic growth rates that are far from exceptional. The macroeconomic and geopolitical backdrops provide the main risks to this forecast.

CAPA also flags the potential emergence of ideal conditions for new entry. As oil prices remain low, fleet replacement rates are reducing, just as new aircraft delivery rates step up in 2016/2017, implying downward pressure on aircraft prices. Money is still cheap and so conditions begin to imitate those of a dozen years ago - the halcyon period for a spurt in LCC growth.