IATA: Falling Oil Prices to Lead to Low Airline Ticket Costs

The International Air Transport Association (IATA) recently announced an outlook for improved industry profitability in its Economic Performance of the Air Transport Industry report.

According to IATA, airlines are expected to post a collective global net profit in 2014 of some $19.9 billion (up from the $18.0 billion projected in June). This looks set to rise to $25.0 billion in 2015.

“Lower oil prices and stronger worldwide GDP growth are the main drivers behind the improved profitability,” IATA’s announcement reads.

IATA sees consumers benefiting substantially from the stronger industry performance as lower industry costs and efficiencies are passed through.

“The airline industry is highly competitive. After adjusting for inflation, average return airfares (excluding taxes and surcharges) are expected to fall by some 5.1 percent on 2014 levels and cargo rates are expected to fall by a slightly bigger 5.8 percent,” IATA said.

The expected $25 billion net post-tax profit represents a 3.2 percent margin. On a per passenger basis, airlines will make a net profit of $7.08 in 2015. That is up on the $6.02 earned in 2014 and more than double the $3.38 earnings per passenger achieved in 2013.

“The industry outlook is improving. The global economy continues to recover and the fall in oil prices should strengthen the upturn next year. While we see airlines making $25 billion in 2015, it is important to remember that this is still just a 3.2 percent net profit margin,” said Tony Tyler, IATA’s Director General and CEO.

“The industry story is largely positive, but there are a number of risks in today’s global environment—political unrest, conflicts, and some weak regional economies- among them.”

Mr. Tyler said a 3.2 percent net profit margin does not leave much room for a deterioration in the external environment before profits are hit.

“Stronger industry performance is good news for all. It’s a highly competitive industry and consumers—travelers as well as shippers—will see lower costs in 2015 as the impact of lower oil prices kick in.”

IATA’s Director General and CEO added that a healthy air transport sector will help governments in their overall objective to stimulate the economic growth needed to put the impact of the global financial crisis behind them at last.