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World Airline Industry: What Does the Past Decade Reveal?

World Airline Industry: What Does the Past Decade Reveal?

In the past two years, we have often analyzed some specific airlines based on our benchmarking tool, the Airline Profits Sustainability Index (APSI). In this and subsequent editions, we are going to be reviewing the airline industry either globally or regionally.

We will now begin this exercise with the review of the world airline industry over the decade, which ended in December of 2015. The main objective of this analysis is to highlight the contribution of the airline industry while sharing any peculiarities the data reveals about airline profitability.

Review of Operational Results

Aircraft Departures and Distance Flown

Between 2006 and 2015, the number of aircraft departures grew steadily from 28.5 to 34 million, a near 20% increase over that span of 10 years. Over that same period, the distance flown also increased consistently year over year from 32.9 to 46.2 billion kilometers, a 40.4% increase. This literally means that not only were more and more airplanes taking off from various airports around the world, but they also carried passengers and cargo payloads much farther and more often than 10 years earlier.

Airline Passenger Traffic and Capacity

The number of passengers flown has increased by 56.89% over the decade under consideration. Beginning at 2.25 billion in 2006, the number of air travelers reached a record 3.53 billion at the end of 2015. Plainly speaking, airlines have flown about half of humanity in just ten short years.

Revenue passenger kilometers (RPK) soared by 58.50% between 2006 and 2015 going from 4.16 trillion to 6.6 trillion. Whereas, airline capacity expressed in terms of available seat kilometers (ASK) also grew by 49.54%, going from 5.49 trillion to 8.21 trillion, despite some fluctuation between 2006 and 2010.

Cargo Traffic

As far as cargo is concerned, the increase between 2006 and 2015 was 30.67%, starting with 38.8 million to 50.7 million tonnes of freight. In that same period, the freight traffic increased by 20.91% reading 204.1K in 2015 from 168.8K revenue tonne kilometers.

Having reviewed the operational results of the world airline industry, let’s now turn to the financial results over the decade under consideration, namely 2006 to 2015.

Review of Financial Results

Operating Revenues

Despite some fluctuations between 2006 and 2010, airline operating revenues increased substantially by 64.85% to reach a 766 billion US dollars in 2014, followed by a slight drop to 720 billion in 2015. The aggregated operating revenues amounted to 6.1 trillion US dollars over that 10-year period, representing a record, almost double that of the preceding decade.

Operating Profits

Operating profits went from 15 billion in 2006 to reach several records. First, 27.6 billion in 2010, then 41.7 billion in 2014 and 57.6 billion US dollars in 2015. Overall, the increase from the beginning to the end of the decade was an exceptional 284%, despite constant fluctuations between 2006 and 2013. Cumulative operating profits over that period reached 226.1 billion US dollars, representing the highest in the history of the airline industry and more than four times that of the previous decade.

Net Profits

Net profits went from 5 billion in 2006 to reach several records. First, 14.7 billion in 2007, then 17.3 billion in 2010, 18.1 billion in 2013 and 38.8 billion US dollars in 2015. Overall, the increase from the beginning to the end of the decade was an exceptional seven-fold, despite constant fluctuations and deep losses totaling 30.5 billion over the 2-year period covering 2008 and 2009.

It also appears that the 10-year period ending 2015 has been the most profitable decade ever in the history of the airline industry with cumulative net profits of 98 billion US dollars.

Net Margin

As far as margins are concerned, it is a different story. Despite operating revenues in trillions of dollars, it was only in 2015 that the net margin ever surpassed 3.1% to reach 5.4%. The average net margin for the decade was less than 2%.

Summary

Despite the spike in oil prices, which led to a huge 26.1 billion dollar loss in 2008, the deepest in airline history, the 10-year period covering 2006 to 2015 was by far the most productive and the most profitable decade for commercial aviation. Although operating revenues were extremely high, net profits and margins were very low. This suggests that airlines worldwide still have a long way to go before they can achieve a healthy financial status, which is necessary for their continued growth and sustainability.

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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.