The International Air Transport Association (IATA) has revised its figures for 2016. In June this year IATA had projected a USD39.4 billion profit for its 265 members but on Dec 8 reassessed it to be USD35.6 billion instead.
This is largely due to slower global GDP growth and rising costs. In 2017 IATA believes the industry is set to make a net profit of USD29.8 billion on revenues of USD736 billion or a 4.1% profit margin.
Nevertheless, despite the revision the latest numbers for 2016 will still be the highest absolute profit generated by the industry and the highest net profit margin (5.1%).
In Asia Pacific, IATA forecasts a profit of USD7.3 billion for the region’s carriers. In 2017 the figure is expected to fall by USD1 billion.
In our view Asia Pacific airlines are likely going to face severe turbulence in 2017 from different fronts, including an erosion in travel demand and from higher jet fuel prices which in turn means higher fuel bills for the region’s carriers. That said, profit is likely to be well below USD6 billion.
Nevertheless airlines worldwide are more resilient than before and should be able to withstand potential crises and cross-border diseases better. Airlines that are badly managed and with a dismal financial track record or poorly funded, unfortunately, may not survive (Transasia is a good example).
A lot of good things are happening in the Philippines, notwithstanding the new president’s tough approach to cut crime in the country.
For one, the Philippines economy is Asia’s fastest growing – in the July-September period it grew 7.1% – the strongest in three years. As a comparison, China’s 3Q grew 6.7% while Vietnam registered 6.4%. Read here.
The booming economy has given a boost to the country’s airlines. Both flag carrier Philippine Airlines (PAL) and Cebu Pacific are showing significantly strong numbers for the nine months of 2016.
Despite posting a net loss of PHP2 billion (USD40.06 million) in 3Q16 (compared to a gain of PHP251.2 million in 3Q15), PAL still posted a profit for 9M16 – with an income of PHP2.6 billion (vs. PHP6.1 billion in 9M15).
December and January are especially peak months for PAL, according to Jaime Bautista, the airline’s president. The US is still the airline’s main revenue generator and in March this year launched services from Cebu to Los Angeles.
Meanwhile PAL Holdings, the parent company of PAL, is seeking regulatory approval or its planned acquisition of shares from the holding company that owns Air Philippines Corp (APC). The idea is to consolidate all the airline entities owned by PAL owner Lucio Tan under one holding umbrella company.
The restructuring, PAL said, will result in the consolidation of financials and results of operations of Zuma – and indirectly, of PAL Express. Zuma owns almost 100% of AirPhil Express.
The motive behind this move is to integrate all the airlines under PAL Holdings, thus cutting costs and hopefully raising revenues.
However, the days of PAL having a monopoly to the US are numbered. Discount carrier Cebu Pacific is currently assessing aircraft that could fly from Manila to Hawaii and the US west coast. The LCC is evaluating the Airbus A330-300neo and A350XWB as well as Boeing’s 787. It is expected to issue a formal tender in 2H17.