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Are Record Airline Profits Just Illusive?

Are Record Airline Profits Just Illusive?

In the past edition of Airline Profits, we have discussed the financial performance of the African airline industry. In this issue, we are dealing with the record airline profitability, which was anticipated since 2014.

Were there record profits in 2014?

Following the IATA’s Global Media Day held in December 2014, many headlines touted the exceptional financial year the airline industry was about to experience worldwide. Indeed, the industry was expected to achieve a cumulative record of US$19.3 million dollars. For an industry, which was accustomed to losing huge amounts of money, the prospect of turning in profits and let alone record profits was very exciting, not just to the airlines, but to all stakeholders.

 

 

  • To airline executives, it meant that they were doing the right things. And doing the right things is the essence of leadership, according to Peter Drucker.
  • To airline employees, this meant the possibility of better compensation and benefits.
  • To the airline customer, this meant the expectation of lower fares.
  • To the airline investor, this meant the potential for bigger return on investment.
  • To the politician, this was the perfect opportunity to call out the airline industry and claim better services and pricing for his or her constituency.

In any case, the anticipation or rather the forecast of record profits in 2014 was predicated upon unexpectedly lower oil prices. It does appear in retrospective that the lower oil prices did not immediately translate into cheaper jet fuel. The reason being that most airlines had already paid for the fuel when the prices were still high. As a consequence, the much-expected record profits fell short by 2.6 billion dollars, well below the 19.9 billion US dollar forecast. Therefore, the airline industry posted a collective 17.3 billion at the end of 2014. And that was much less than the record profits of 2013 at 18.1 billion US dollars.

There was indeed some exceptional results set, but only at the regional level. It turned out that the only region which made record airline profits was North America with 11.2 billion dollars. The other regions, namely Europe, Asia-Pacific, Africa, Latin America and the Middle East had performed better in the decade preceding 2014.

The exceptional results were reported only in 2015 with 35.3 billion US dollars in net profits, of which North America alone accounted for 60.9% with an unprecedented 21.5 billion.

Apart from that, only Europe had a record performance with 7.5 billion. That represented only 1.1 billion more than their previous record of 2007. The Middle East too did break a record, but with only 100 million more than 2012.

With the latest IATA forecast published last December 2016, then 2017 are not going to be record years for any regions, although the cumulative global airline profits will remain high. Hence, the much-touted record performance was mainly contributed by one region: North America with US air carriers having earned billion dollars in record profits over several quarters.

 

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Kofi Sonokpon

Kofi Sonokpon

Managing Editor of Airline Profits, the first aviation magazine devoted to improving airline effectiveness and profitability, Kofi Sonokpon has more than 20 years of international experience in aviation. Kofi holds an IATA sponsored Master of Business Administration (MBA) in Air Transport Management from the John Molson School of Business at Concordia University in Montreal. Kofi Sonokpon is also an author and speaker on the topics of leadership, effectiveness, and profitability.