Cathay Pacific's new Airbus A350WXB. Photo / Supplied
Cathay Pacific's new Airbus A350WXB. Photo / Supplied
Air fares are set to fall further next year and while airlines face strong competition and uncertainty over oil prices, the industry will remain profitable.
Figures released by the International Air Transport Association show average return fares paid by nearly four billion travellers will fall 3.3 per cent to US351 (NZ$489). This is 63 per cent lower than 1995 in inflation adjusted terms.
New destinations are forecast to rise by 4 per cent next year. Airlines are enjoying unprecedented profitability.
"These three years are the best performance in the industry's history-irrespective of the many uncertainties we face. Indeed, risks are abundant- political, economic and security among them. And controlling costs is still a constant battle in our hyper-competitive industry," said Alexandre de Juniac, IATA's Director General and chief executive.
At a media day in Geneva, he said the global airline industry was expected to make to make a net profit in 2017 of $US29.8 billion , down from $35b this year.
"Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8b. That's a very soft landing and safely in profitable territory," he said.
On average, airlines will retain $US7.54 for every passenger carried.
In 2016 oil prices averaged $US44.6 a barrel (Brent) and this is forecast to increase to $US55.0 in 2017.
This will push jet fuel prices from $US52.1 a barrel to $65 a barrel.
It is expected to account for 18.7 per cent of the industry's costs in 2017, well below the peak of 33.2 per cent in 2012-2013.
It is estimated by IATA that airspace and airport inefficiencies waste around 5 per cent of fuel burn each year and it is lobbying governments to remove them.
The global numbers
Graphic / NZ Herald
The demand stimulus (passengers enjoying cut price fares) from lower oil prices will taper off in 2017, slowing traffic growth to 5.1 per cent - down from 5.9 per cent in 2016.
"We expect nearly 4 billion travellers and 55.7 million tonnes of cargo in the coming year. And almost 1 per cent of global GDP is spent on air transport," he said.
"Governments, however, do not make aviation's work easy. The global tax bill has ballooned to $US123 billion. Over 60 per cent of countries put visa barriers in the way of travel. And the total number of taxes on tickets exceeds 230."
Airlines in North America would be the strongest around the world.
Net post-tax profits will be the highest at $18.1b next year, although down slightly from the $20.3b expected in 2016. The net margin for the region's carriers is also expected to be the strongest at 8.5 per cent with an average profit of $US19.58/passenger.
Governments, however, do not make aviation's work easy.The global tax bill has ballooned to $US123 billion. Over 60 per cent of countries put visa barriers in the way of travel. And the total number of taxes on tickets exceeds 230.
Airlines based in Europe are expected to post an aggregate net profit of $5.6b next year, below the $7.5b for 2016.
Nonetheless, carriers there are forecast to generate a 2.9 per cent net profit margin and a per passenger profit of $5.65.
Capacity in 2017 is expected to grow by 4.3 per cent ahead of demand growth which is forecast at 4.0 per cent.
"The region is subject to intense competition and hampered by high costs, onerous regulation and high taxes. And terrorist threats remain a real risk, even if confidence is starting to return after the tragic incidents in recent times," said de Juniac.
Alexandre de Juniac, director general and CEO of the International Air Transport Association.
In the Asia-Pacific region airlines are forecast to generate a net profit of $6.3b - down from $7.3b in 2016 - for a net margin of 2.9 per cent. Airlines are forecast to make $4.44 per passenger.
Air New Zealand in the last year made a pre-tax profit of $NZ806 million but in guidance issued in August said increased competition meant earnings in the 2017 year would guidance for the current financial year to a range between $NZ400m to $NZ600m.
Middle Eastern carriers are forecast to generate a net profit of $US0.3b for a net margin of 0.5 per cent and an average profit per passenger of $1.56.
"Threats are emerging to the success story of the Gulf carriers, including increases in airport charges across the Gulf States and growing air traffic management delays."
The region is subject to intense competition and hampered by high costs, onerous regulation and high taxes. And terrorist threats remain a real risk, even if confidence is starting to return after the tragic incidents in recent times.
Latin American airlines are expected to post a net profit of $200m, which is slightly lower than the $300m forecast for 2016. Profit per passenger is expected to be $0.76.
Carriers in Africa are expected to deliver the weakest financial performance with a net loss of $800m (about the same as this year). For each passenger flown this amounts to an average loss of $9.97.
The region's weak performance was being driven by regional conflict and the impact of low commodity prices.
IATA - which represents 265 carriers comprising 83 per cent of world air traffic - estimates that total employment by airlines will reach 2.67 million in 2017, a gain of over 2 per cent compared to 2015.
An Emirates A380 lands at Auckland International Airport. Photo / Greg Bowker
