2017: Positive Outlook for The Airline Industry

February 24, 2017

 

The airlines are likely to experience a strong growth in 2017, following multiple years of positive rise in passenger travel demand driven by wealth creation in Asia Pacific and the Middle East.

 

Continue Strong Profits

According to the International Air Transport Association (IATA)’s report, the industry is forecasted to reach total revenues of $736 billion and generate a net profit of $29.8 billion in 2017, that represents at 4.1% net profit margin. It maintains the third straight year of consecutive profits.  On the other hand, the outlook for 2016 airline industry profitability was $35.6 billion, which was to be the highest profit made by the airline sector and strongest net profit margin at 5.1%.

The strongest financial performance is being delivered by airlines in North America with the post-tax profits to be the highest at $18.1 billion next year, although down slightly from the $20.3 billion expected in 2016. Followed by Asia Pacific and European carriers, which are predicted to generate a net profit of $6.3 billion and $5.6 billion respectively in 2017.

 

A year of new ultra-long air routes

This year more long-haul routes are expected to open worldwide. Noticeably, Qatar Airways’ non-stop service from Doha to Auckland landed at 7.25am (6.25pm GMT on 05th February 2017). Its long-range Boeing 777-200LR had made aviation history covering a distance of 14,542 km and lasting 17 hours and 30 minutes. This is even a more momentous occasion for Qatar Airways providing another accomplishment to celebrate in this 20th year of flying the flag internationally for Qatar.

 

 

Last March, its rival Emirates airline launched a flight from Dubai to Auckland which was the longest non-stop flight at that time. That flight took 16 hours and 5 minutes eastbound and 17h 25m westbound with the 14,200km journey. However, regarding kilometers, the longest route is Air India's Delhi to San Francisco (15,300km) - which now flies over the Pacific Ocean instead of the Atlantic - but because of favourable tailwinds takes only 14 and a half hours.

 

In addition, Singapore Airlines is planning to resume a non-stop service from Singapore to New York as it takes delivery of a new ultra-long range variant of the Airbus 350 jet. Meanwhile, Qantas also has a plan to open a new route between Perth and London using its new Boeing 787-9 Dreamliner in this year, which would make the long haul journey in 19 hours, and potentially to become the next longest commercial flight in 2017.

 

Capacity expansion

Although conditions in 2017 will be more difficult with rising oil prices and political issues such as the US travel ban, the air transport is still expected to increase significantly. We expect nearly 4 billion travellers and 55.7 million tons of cargo in 2017. And almost 1% of global GDP is spent on air transport, estimated $769 billion, which plays an important role in the global economy. Air transport has made the world more accessible than ever.

Industry capacity expansion is also expected to slightly slow to 5.6% (down from 6.2% in 2016). Capacity growth will still outstrip the increase in demand, thus lowering the global passenger load factor to 79.8% (from 80.2% in 2016). However, airline expansion leads to the growing in the fleet of aircraft and destinations, subsequently increasing the demand of service and expanding the airports.   

 

Furthermore, Airbus reported the fleet of passenger aircraft of over 100 seats was 18,000 in 2015. However, it will more than double to 37,700 in the next 20 years with a corresponding increase in the need for MRO services, pilots and trained technicians. Interestingly, there were an estimated 200,000 active pilots in the passenger aircraft fleet over 100 seats in 2015, and this is to grow to 450,000 by 2035. In order to meet this requirement and allow for retirement, the industry would need a total of 560,000 new pilots that will need to be trained to fly in the next 20 years.

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