Airline industry is poised to grow
A year that has shown an increase in fuel costs has shocked the majority of people by announcing a second straight year of growth. This is largely thanks to the increase in demand for air travel.
The International Air Transport Association, also known as the IATA, has announced that for the second year in a row, air transport is showing signs of amplified profitability. Plus, this comes after a minimal downgrade in how the industry guessed profits would be for 2014 ($19.7 million down to $18.7 million).
Reasons for the Boost
Higher oil prices than were figured into the original industry projection for 2014 have been encountered, but the demand for air travel is quite a bit above what was previously expected so far. This has led to much of the potential loss being offset, and potential profits to rise. The slowly recovering global economy is leading to more cargo travel requests, helping the industry stay strong and continue to grow.
Right now, the air industry is expected to be up over $2 billion dollars over how the last projection looked. The average profit for each passenger is just over $5, which is up from most previous years. “The efficiencies of improved industry structure through consolidation and joint ventures is providing more value to passengers and helping airlines to remain profitable even in difficult trading conditions. But we still need governments to understand the link between aviation-friendly policies and broader economic benefits. In many parts of the world the industry’s innate power to drive prosperity through connectivity is compromised by high taxes, insufficient infrastructure and onerous regulation,” said Tony Tyler, CEO and Director General of IATA.
The individual air sector may vary a bit more than the global air sector, since these numbers are based off of global increases, but the industry as a whole is starting to embrace the upturn in a way that can allow its continued growth.
There are numerous reasons why this forecast is expected. The biggest motivators behind this forecast are fuel costs, increased travel demand, additional features being presented to customers that were not available before, and the recovering global economy. The better other industries are able to recover, the more air travel they will require and the better the air industry will do as a whole.
2014 Profit Margins
Currently, all of the different regions that were looked at are showing the potential of higher profit margins than they saw in 2013. Here are some examples.
An $8.6 billion profit is expected from North American airlines.
A $3.7 billion profit is expected from Asia-Pacific airlines.
A $3.1 billion profit is expected from European airlines.
A $2.2 billion profit is expected from Middle Eastern airlines.
A $1 billion profit is expected from Latin American airlines.
A $100 million profit is expected from African airlines.
Government Policies and Economic Risks
With the current Ukrainian state of affairs, every industry that requires oil is feeling the cost of the increased prices. This could come into play with some of the expected profit margins of these different airlines. Unfortunately, there is little that government policies can do to offset this occurrence. Trade around the world could potentially be affected by these increases, but along with the price increases, the airline industry as a whole is still experiencing the boost to demand, which can help keep these prospects positive.
Thankfully, most of the global governments agree that working together to find initiatives to help keep the airline funding going without delays is an important step. Many governments are working together to help remove delays due to the regimes, additional costs and fees, and to figure out what causes these delays. As soon as all of these governments can get on to the same fiscal page, profits will be more apt to increase throughout the industry.