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After record-setting profits in 2014, the airlines are in line for another incredible year according to the International Air Transport Association (IATA). The association announced this morning an upward revision of its 2015 industry outlook to a $29.3 billion net profit on expected revenues of $727 billion.
That would be a four percent net profit margin. The significant strengthening from a $16.4 billion net profit in 2014 (re-stated from $19.9 billion) reflects the net impact of several global factors, including stronger global economic prospects, record load factors, lower fuel prices, and a major appreciation of the U.S. dollar.
All regions are expected to see a profitability improvement in 2015 compared with 2014, but the IATA said there are differences in regional economies.
"The industry's fortunes are far from uniform. Many airlines still face huge challenges," said Tony Tyler, the IATA's director general and CEO, in a statement.
Over half the global profit is expected to be generated by airlines based in North America ($15.7 billion). For North American airlines, the margin on earnings before interest and taxation (EBIT) is expected to exceed 12 percent, more than double that of the next best performing regions of Asia-Pacific and Europe.
"For the airline business, 2015 is turning out to be a positive year," Tyler said. "Since the tragic events of September 2001, the global airline industry has transformed itself with major gains in efficiency. This is clearly evident in the expected record high passenger load factor of 80.2 percent for this year. The result is a hard-earned 4 percent average net profit margin. On average, airlines will retain $8.27 for every passenger carried."
The IATA also noted expected return on invested capital (ROIC) will be 7.5 percent. For the first time, the industry-level average ROIC will be in excess of its cost of capital, which has fallen to 6.8 percent largely due to lower bond yields. This industry average is, however, dominated by airlines in the United States, which have benefited the most from the fall in U.S. dollar-denominated fuel prices, a strong local economy, and industry restructuring. The average non-U.S. airline is still struggling with returns below the cost of capital and a significant debt burden.
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