Airline profit expectations for 2016 have moderated but remain positive, according to IATA’s quarterly survey of airline CFOs and heads of cargo in January.
The rate of expected improvement in profitability over the next 12 months has fallen over the past two quarters, suggesting that improvements in key drivers might have peaked earlier in 2015.
Recent gains in profitability have been driven by strong growth in passenger volumes and falling input costs.
Passenger volumes were reported to have expanded at a robust rate during the fourth quarter and there are signs that weakness in cargo volumes has bottomed out, which is consistent with freight Tonne Kilometres (FTK) data and the lacklustre demand backdrop.
The growth outlook is positive for both passenger and cargo businesses, but the share of respondents expecting improvements has decreased compared to a year ago. This likely reflects concerns over weakness in the global business environment and emerging market economies.
Respondents reported seeing a decline in input costs in fourth quarter compared to a year ago, and that trend is expected to continue in the year ahead, IATA said.
Consistent with the lower input costs, the survey also showed weakness in yields in both businesses, for the recent past and in 2016.
Airline employment activity was reported to have increased in the fourth quarter and that is expected to continue over the next 12 months, consistent with the positive outlook for financial performance.
Passenger traffic volumes were up during Q4, 2015 compared to the year ago period.
The survey results, IATA said are consistent with the latest air transport data, which indicate that air travel is up 6-7% compared to a year ago.
Despite weakness in some emerging market economies, passenger air travel continues to expand strongly, supported by declines in the real cost of air transport.
The survey also suggests that growth in passenger volumes will continue in the coming months.
But the share of respondents expecting an increase in passenger volumes in the year ahead has moderated compared to early 2015.
The share of respondents expecting passenger growth during the next 12 months has been declining – it peaked at 79% in April 2015, and is now down to 55%.
Respondents indicated that air freight volumes started to improve slightly during the past three months.
This response aligns with developments in FTK data, which indicates that declines earlier in 2015 have started to bottom out.
The outlook for cargo volumes remains positive, but fewer respondents (45%) now expect gains in the year ahead when compared to the start of 2015 (71%), which was the recent peak of respondents’ optimism for cargo growth, it said.
“Expectations have weakened on the back of slower growth in world trade as well as little improvement in global business confidence due to sluggishness in some emerging markets,” IATA said.