The (IATA) predicts the global airline industry will generate $18 billion in profits this year, but far from being a cause for cause for celebration, Director General Tony Tyler called this forecast a “challenge.”
“The brutal economic reality is that on revenues of $746 billion, we will earn an average net margin of 2.4%,” Tyler said June 2 at the IATA Annual General Meeting in Doha, Qatar. “That’s less than $6 per passenger.”
Tyler noted profits are improving, and the average return on invested capital (ROIC) today is 5.4%, higher than it has historically been, but that is short of what he said is the 7-8% ROIC investors demand.
Taxes and fees levied on airlines and air travel are major impediments to the industry’s profitability, Tyler said, citing the example of the U.K.’s Air Passenger Duty, which the government is “tinkering with” rather than simply eliminating. “Protectionist” caps on ownership and control limit airlines’ access to capital, and Tyler called on governments to loosen restrictions and allow airlines to function like other industries.
A prime example of government impeding the airline industry is Venezuela, Tyler said. The country has $4 billion in airline revenue generated in Venezuela that it is not allowing airlines to convert from bolivars and repatriate. Airlines will serve the country as long as they are getting paid, and Tyler said this issue is putting Venezuela’s connectivity at risk.”
Venezuela has signaled that it will allow airlines to repatriate some of these funds in phases, at an unfavorable exchange rate. Much of the $4 billion accrued at the 6.3 bolivars to the dollar exchange rate. By offering airlines an exchange rate far lower than this – to as low as 50 bolivars to the dollar, Venezuela is effectively discounting the funds. Tyler said he was aware that some smaller carriers may have taken the offer, but that most major carriers have not.
IATA is working with is members and the Venezuelan government to resolve this issue, Tyler said.