IATA forecasts record profit of $35.6B this year for the airline industry, a downward revision from a prior prediction of $39.4B.
A profit margin of 5.1% is anticipated for airlines in 2016.
Looking ahead, IATA warns on the impact of higher oil prices next year. Jet fuel prices are expected to increase to $64.90/bbl from $52.10/bbl this year. Traffic is seen slowing to 5.1% growth and load factor is seen slipping below 80%.
IATA says the strongest region next year will be North America with net post-tax profits of $18.1B.
Wolfe Research analyst Hunter Keay isn't worried that higher oil prices in the future will be a negative for airline companies.
He thinks the impact of capacity discipline is more important than the bottom line of a lower fuel spend. Keay's analysis is below.
"Multiples drive about 70 percent of the movement in stock prices. And multiples are dictated by the perception of pricing power, and pricing power is dictated by capacity control. Excess capacity drives pricing down... It’s not about profits, it’s about how they make the profits, about pricing power. Capacity discipline and fundamental behaviors are far more important than the amount of money they earn."
Oil prices are up 0.7% on the day, but have dropped sharply over the last month.
Don't count out airline stocks as growth stocks just yet. A forecast from the IATA calls for a doubling of the number of global passengers to 7.2B by 2035.
The CAGR (compound average growth rate) on the outlook works out to 3.7%, with steady growth across regions (China +4.7% CAGR, North America +2.8%, Europe +2.5%, Latin America +3.8%, Middle East +4.8%, Africa +5.1%).
Global demand for air travel may be "shifting down a gear," according to global aviation group IATA, which signaled a cautious outlook for passenger traffic after growth in April rose just 4.6% on year - the lowest pace since January 2015.
While some of the slowdown could be attributed to the Brussels terror attacks, there are still signs that underlying traffic growth could be decelerating, Director General Tony Tyler said. "The stimulus from lower oil prices appears to be tapering off. And the global economic situation is subdued."
Aer Lingus (OTC:AIRXY) said it's using Dublin as a gateway to connect the U.S. and Europe.
Ryanair's (NASDAQ:RYAAY) aggressive pricing is identified as a major factor in Europe that's unlikely to reverse anytime soon.
A major theme has been industry consolidation with several execs pointing to more M&A opportunities in Europe and Asia. Foreign ownership of U.S. airlines is seen as opening up in the future, with today's joint ventures called a "precursor" to that evolution.
The net profit forecast for 2015 is revised upward to $33B from $29.3B. A net profit margin of 4.6% is expected.
The outlook for 2016 from IATA is for total profits of $36.3B and a net profit margin of 5.1%.
2016 profit forecast by region: North America $19.2B, Europe $8.5B, Asia-Pacific $6.6B, Middle East $1.4B, Latin America $400M, Africa -$100M.
Strong passenger demand and lower oil prices are two drivers of the profit growth, although profit is impacted significantly in many markets due to the high level of the U.S. dollar, notes the industry-watching group.
Citing "increased terrorist threats" from militant groups in various regions of the world, the U.S. State Department has issued a global travel alert ahead of a busy Thanksgiving week.
The department did not advise people against travel but said U.S. citizens should be vigilant, especially in crowded places.
The announcement comes as Brussels remains on lockdown for a fourth day and follows the discovery of an explosive belt near Paris and the mobile phone of a fugitive believed to have taken part in the Nov. 13 attacks.
IATA reports total revenue passenger kilometers increased 8.2% Y/Y in July.
The mark is an acceleration from the 5.5% growth seen in June. The timing of Ramadan impacted results.
International traffic was up 8.6% with broad gains across geographic divisions. Asia-Pacific RPKs were up 8.5% to top the capacity growth in the region. Load factors also increased in Europe and North America during the month.
Despite the strong read from IATA for July, the forecast for the fall is shakier. "Following a strong summer the outlook heading into autumn is unsettled to say the least," warns the industry watcher.
U.S. airlines expect to carry a record 222M passengers this summer, up 4.5% from last year, Airlines for America says.
The companies are increasing seating 4.6% to cope with the demand, which the trade group says is being boosted by improved employment and consumer sentiment.
Around 31M customers are set fly abroad on U.S. airlines in what would be another record.
In Q1, 10 listed U.S. passenger airlines grew net profit 1.1% to $3.1B, helped by a 3.1% increase in revenues as the number of travelers rose 3.9%. A sharp drop in fuel prices also contributed to the higher profits, although this was offset by a 10.5% growth in wages and benefits.