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June 2017 IATA State of the Region: Africa & Middle East

Economic Performance Outlook: 2017 industry financial forecast update​


IATA’s latest economic forecast points to 2017 being the third consecutive year where the air transport industry generates a rate of return that exceeds its cost of capital. Net post-tax profits of US$30bn are expected this year, a little below that of both 2015 and the revised estimate for 2016. Significant regional disparities remain, however, with the operating environment for African and Middle East airlines expected to again prove challenging in 2017. 


Industry overview 

The global airline industry is forecast to generate profits of US$30 billion in 2017, somewhat below the US$35bn outcome in each of the past two years. The operating (EBIT) margin is forecast to be a solid 6.6%, also a little lower than in recent years. 


Historically, the air transport industry has struggled to generate the level of returns adequate to appropriately compensate equity investors for risking their capital. But if met, the 2017 financial forecast will represent the third consecutive year where the industry’s return on capital exceeds the cost of that capital, generating a ‘normal’ return for investors. 


The expected decline in industry-wide profits and ROIC in 2017 is being driven by a rise in breakeven load factors, as unit costs are now rising, along with a moderate fall in achieved load factors as demand slows more than capacity growth. While the recent financial improvement represents a positive development, the challenge for the industry is to make this the norm rather than the exception – as is the case in most other industries. This becomes particularly important in the context of being able to attract the estimated US$5-6 trillion of new capital required for fleet renewal and expansion over the next 20 years. 


Global drivers

The latest IMF forecasts point to a modest lift in global economic growth, from 3.1% in 2016 to 3.4% in 2017 and 3.6% in 2018. The bulk of this improvement comes from emerging economies, although the outlook for the US, Europe and Japan is also stronger than was the case previously. 


While oil prices are not expected to rise sharply in 2017, the biggest stimulus to demand from lower oil prices is probably behind us. As such, the strength of the economic cycle will play an important role in the outlook for both air transport demand and industry financial performance in 2017. 


Regional considerations
Download the June 2017 IATA State of the Region: Africa & Middle East full document here. 
  

The strong financial outcomes at the industry-level mask considerable divergence across regions. For African and Middle East airlines, the operating environment is expected to remain challenging in 2017. Ongoing strong capacity growth will place further pressure on ME carrier yields this year, with profits forecast to ease to around US$300 million, from around $1 billion in each of the past two years. Africa-Indian Ocean (AFI) carriers continue to struggle to consistently achieve adequate load factors and, overall, are forecast to register another moderate loss in 2017. Read more the full article here...

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