May 2017

Growth, Profitability and Resilience

Photo of Anna Fernandes

By Anna Fernandes

Anna Fernandes is a transport-focused communications professional, who has worked for major airlines and port management companies for over 20 years.

Aviation specialist Anna Fernandes reviews the sector’s economic performance industry on the 2016 End-Year Report by the International Air Transport Association (IATA).

2016 – a good year driven by strong demand

2016’s global passenger traffic results were relatively strong, excelling the ten-year average annual growth rate of 5.5%. Demand, or revenue passenger kilometers (RPK), rose 6.3% compared to 6.0% in 2015.

Overall, the continent recorded year-over-year increases in demand: international passenger traffic in Africa rose 6.7% in 2016 compared to 2015; capacity rose 6.9% and load factor (the ratio between the lift and weight of an aircraft) fell 0.2% to 79.6%. African airlines had their best growth performances since 2012, up 7.4%, driven by strong demand on routes to and from Asia and the Middle East.

On the domestic front, air travel rose 5.7% with capacity increase of 5.1% and load factor at 82.2% up by 0.5 percentage points over 2015.

IATA’s downward revision for 2016, from a projected net profit of $39.4 billion in June to $35.6 billion, was owing to the slower global GDP growth and rising costs.  However, this will still be the highest absolute profit generated by the airline industry and the highest net profit margin by 5.1%.

2017 – a resilient outlook

Projections for 2017 expect the global airline industry to make a net profit of $29.8 billion in 2017.  With a forecast of $736 billion in revenues, the net profit margin represents 4.1%.  This will be the third consecutive year and the third year in the industry’ history, in which airlines will make a return on invested capital of 7.9 per cent, which is above the weighted average cost of capital (6.9 per cent).  The challenges for Africa’s aviation industry in 2017 will be primarily from the impact of the rising oil prices among the already weak infrastructure, political instability, government taxes, competition and lack of open skies agreements (air services liberalization). Spillovers from existing conflicts in several countries, as well as a heightened incidence of terrorism, pose risks to regional economic activity. Rising conflict-related risks would likely increase economic uncertainty and slow investment. But as network connectivity continues to set new records, air transport makes the world more accessible than ever, and is a critical enabler of the global economy. Africa ranks among the world’s top economic performers and is expected to remain strong in the coming years.

Industry Updates:

RwandAir announces direct daily flights from Kigali to Harare, Zimbabwe and four weekly flights to Mumbai, India in April 2017.

Starting June 2017, Ethiopian Airlines launches three weekly flights to Chengdu, China.  Ethiopian currently operates daily non-stop flights to Beijing, 10 weekly flights to Guangzhou and six weekly flights to Hong Kong.

Headquartered in Dar es Salaam, Tanzania, Precision Air’s main services include; scheduled flights, chartered and cargo air services. Its new codeshare agreement with Etihad Airways will feed Tanzanian domestic passenger traffic through Abu Dhabi to over 110 destinations on Etihad’s network.

Five new Airbus A330-300 wide-body aircraft have been added to South African Airways’ fleet. Delivery of the last two aircraft will take place before the end of June 2017.

Kenya Airways the first African carrier to be privatized back in 1996, celebrates its 40 year anniversary.

Air Namibia and Turkish Airlines have signed a codeshare agreement effective in March 2017.

Source: IATA Airline Industry Economic Performance