Last updated: 02:30 PM ET, Thu June 02 2016

The Airline Industry Will Make More Profits Than Expected This Year

Airlines & Airports | Josh Lew | June 02, 2016

The Airline Industry Will Make More Profits Than Expected This Year

Photo courtesy of Thinkstock

Despite worries about rising fuel costs around the globe and poor unit revenue numbers in the United States, the worldwide airline industry is projected to make record profits this year. According to the International Air Transport Association, the industry will make $39.4 billion in 2016. 

This is a revision of the projections that the IATA made in December of 2015. At that time, it estimated profits of $36.3 billion for the year. 

IATA CEO Tony Tyler said that the industry is healthy, but a peak in profitability may be coming this year as oil prices start to move upwards. “Lower oil prices are certainly helping — though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower oil prices. Load factors are at record levels. New value streams are increasing ancillary revenues.” 
Though healthy profits are projected for the industry overall, success is not guaranteed in some parts of the world. For example, African airlines are expected to post a loss of about $500 million this year. Meanwhile, in Latin America, unfavorable exchange rates and poor economic performance have made it virtually impossible for airlines there to cash in on the upswing that is taking place in other parts of the globe. 

During his address at the organization’s annual meeting in Dublin, Tyler said that, though things seemed to be looking up this year, airlines will need a longer run of positive years before they have totally recovered from the recent slump. ““It will, however, take a longer run of profits before balance sheets are returned to full health.”  

READ MORE: Which Airlines are Winning So Far in 2016?

There are signs this year, however, that airlines are starting to figure out how to make profits even in less than ideal conditions. There is currently a run on ultra-efficient aircraft, which should help carriers lower their fuel costs and protect against any price spikes in the future. Hedging strategies could also help with this as well. Estimates suggest that airlines will continue to benefit from low oil prices for the next two or three years thanks to their hedging strategies. The new aircraft could help keep operating costs low after that. 

Though the practice might not make fliers happy, airlines have also started honing their extra offerings. Fees for extra services (and sometimes for services that fliers consider basic) have helped airlines maximize their profits. As more services and features become widespread (in-flight Wi-Fi, premium economy class, etc), airlines will have even more of these extra revenue streams to help pad their profits. 

Are the higher profits good news for fliers? Perhaps. It is now obvious that extra fees and aggressive up-selling will be a part of air travel for a long time to come. On the other hand, if airlines can keep ahead of fuel prices, they will be able to continue to offer cheaper fares on competitive routes.

For now, it looks like the current trend of profitability will continue for most of the world’s airlines for at least one more year. 


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