A Qatar Airways Airbus 350. Driven by an improvement in average returns, commercial airlines’ delivery of new aircraft will total more than 1,700 valued at over $180bn in 2015, says IATA.

By Pratap John
Chief Business Reporter
Geneva

Driven by an improvement in average returns, commercial airlines will have taken delivery of more than 1,700 new aircraft valued at over $180bn by end-2015, according to the International Air Transport Association (IATA).
“The trend improvement in average returns (ROIC) has given the industry the confidence to invest on this scale,” IATA chief economist Brian Pearce said.
Sustained high fuel costs have also made it economic to retire older aircraft at a higher rate, but that effect will clearly weaken this year. Over half of this year’s deliveries would replace existing fleet, making a significant contribution to increasing fuel efficiency, he said in a presentation during the IATA Global Media Day in Geneva.
The fleet is forecast to increase by more than 900 aircraft to end next year at almost 28,000 aircraft. The average size of aircraft in the fleet is continuing to rise slowly.
So by the end of 2016, there will be some 4mn available seats, Pearce said. These seats are also being used more intensively, which is critical for profitability in a capital-intensive industry – and it also reduces environmental impact. Passenger load factors are expected to rise above 80% on average this year.
Aircraft are also being flown more intensively. The number of scheduled departures is forecast to exceed more than 36mn next year. That’s an average of 69 aircraft departing each minute of 2015, Pearce said.
On capital providers to the industry, he said debt providers to the airline industry were well rewarded for their capital, usually invested with the security of a very mobile aircraft asset to back it.
On average during the business cycle the airline industry has been able to generate enough revenue to pay its suppliers’ bills and service its debt. But typically net post-tax profit margins have been small, leaving little to pay equity investors. Equity owners have not been rewarded adequately for risking their capital in most years, except at a handful of airlines. Investors should expect to earn at least the normal return generated by assets of a similar risk profile, the weighted average cost of capital (WACC).
Such is the intensity of competition, and the challenges to doing business, that average airline returns are rarely as high as the industry’s cost of capital. Equity investors have typically seen their capital shrink.
But this year IATA expects the industry to generate a return on invested capital (ROIC) of 8.3%, which does, for the first time, adequately reward equity owners.
On invested capital of almost $700bn, the industry is forecast to generate $10.3bn of value for investors this year, Pearce said. Page 15