Airline carrier profits to soar as oil price benefits hit heights - IATA

Profits in the airline industry are expected to take off this year as the benefits from low oil prices peak, according to the International Air Transport Association (IATA).

For 2016, the organisation revised up its air industry profit outlook to rise for the fifth successive year to $39.4bn from the $36.3bn forecast in December and from the $35.3bn generated in 2015.

Over half of the industry profits, almost $23bn (up 6.5%), are forecast to be generated by North American carriers, while European airlines are expected to report $7.5bn profit (up 1.4%), Asia-Pacific rivals $7.8bn (up 8.3%), Middle Eastern carriers $1.6bn (up 14%), Latin America should collectively break even after their $1.5bn loss in 2015, and African carriers are forecast to make a further collective loss of $0.5bn.

"Lower oil prices are certainly helping," said IATA chief executive Tony Tyler at the body's annual meeting and World Air Transport Summit in Dublin, "though tempered by hedging and exchange rates.

"In fact, we are probably nearing the peak of the positive stimulus from lower prices. Performance, however, is being bolstered by the hard work of airlines."

The bumper profits are expected to be generated on revenues of $709bn for an aggregate net profit margin of 5.6%.

The IATA calculated that airlines will transport 3.8bn passengers and 52m tonnes of cargo this year. That will stimulate economies and spread prosperity

Average return air tickets will cost $366 in 2016, which is 62% less than the price a decade ago.

The IATA's passenger survey on Wednesday found revenue passenger kilometers (RPK's) were up 4.6% in April, the first month of sub-5% traffic growth since January 2015, while passenger load factor was down 30 basis points.

RBC Capital Markets noted that in May, shares of publicly traded airlines decreased 3% in aggregate.

South American airlines steered the decline, at -15% in aggregate. North American airlines and European airlines sold off for second consecutive month, decreasing -3% and -1%, respectively.

"Deteriorating load factors, lowered profit expectations, a continually soft cargo market, and airline share price underperformance round off the list of fundamentals that have also deteriorated over the last few months," RBC analysts said.

"The next significant milestone would be traffic slipping into negative territory, which isn't much of a stretch from current results."