Airline executives more optimistic on profitability this year

More than 2 in 5 expect profit increase in the next twelve months.

According to the Airline Business Confidence Index of IATA, airline CFOs and heads of cargo reported that profitability was unchanged in Q4 2016 compared to that in the same period of 2015.

"Industry heads were slightly more optimistic about the outlook for profits over the coming 12 months than they were in October’s survey. But set against a more difficult operating backdrop, the latest survey results continue to indicate that momentum in the profitability cycle has weakened," IATA said.

Meanwhile, the responses on the demand side were broadly consistent with the trend pick-up in passenger volumes towards the end of last year, as well as the stronger-than-expected 2016 peak season for air freight. Our participants remain very positive about the outlook for passenger (especially) and cargo demand over the 12 months ahead.

Around 31% of respondents reported an annual increase in operating costs in Q4 2016. This is the highest proportion recorded since July 2014.

"With a rebalancing in the oil market slowly taking place, and some signs of emerging labor cost pressures, the forward-looking weighted-average score remained above the 50-mark for just the second time in the past 10 surveys, pointing to a further increase in input costs over the coming year," the firm noted.

On the other hand, nearly 2 in 3 reported lower passenger yields in Q4 2016 compared to the same period in 2015, underlining the challenging profitability environment. On the freight side, ongoing concerns about future capacity growth, particularly related to belly-hold capacity from additions to the passenger fleet, mean that respondents remain negative on the prospects for freight yield over the coming 12 months.

The index also noted that airline employment activity increased for the eighth consecutive quarter in Q4 2016. Half of the respondents expect to keep employment levels unchanged at current levels over the next 12 months.