Investor sentiment towards the airline industry received a further shot in arm this week following bullish news from the International Air Transport Association (IATA).
Supported by a backcloth of collapsing fuel costs and improving passenger numbers, the institution now expects profits across the industry to hit $29.3bn in 2015, up from a previous forecast of $25bn and surging from $19.9bn in 2014.
It is true that the IATA has earmarked US carriers as the major provider of this year’s expected profits boost, however, businesses that the body says “have benefitted the most from the fall in US dollar-denominated fuel prices, a strong local economy, and industry restructuring.”
But while high taxation, regulatory problems and macroeconomic turbulence in Europe remain a problem for the region’s carriers, the IATA noted that “the prospects for airlines based in the region have improved slowly over the last two years” despite the economic travails of the South. European airlines are anticipated to clock a $5.8bn profit in 2015.
Passenger numbers keep on rising
The IATA’s release would have come as particular cheer to International Consolidated Airlines (LSE: IAG), with the trade body commenting that the improving profits outlook is “particularly true for network airlines serving the North Atlantic, which looks set to continue generating decent returns.”
The Heathrow company — whose British Airways and Iberia brands are stalwarts of the Transatlantic route — noted that “there was a consistent positive performance in our key North American market” during January-March. And success here helped to power total revenues 12% higher in the period, to €4.7bn.
But improving financial conditions on the continent are also boosting IAG’s appetite for local carriers, the company remaining locked in talks to acquire Irish budget airline Aer Lingus.
Indeed, the short-haul, budget segment in Europe continues to enjoy rampant passenger growth, exemplified by latest traffic data from both easyJet (LSE: EZJ) and Flybe (LSE: FLYB). While the former saw passenger numbers gallop 7.2% higher in May, its rival noted in its most recent release that volumes leapt 15% in the first three months of 2015.
Planebuilders set for take off
With the bottom line across the airline industry set to expand in the coming years, hardware manufacturers like Cobham (LSE: COB) and Rolls-Royce (LSE: RR) should also enjoy the windfall as aircraft sales are anticipated to tick higher.
Cobham is a critical parts supplier for planebuilding giants Boeing and Airbus, firms which continue to enjoy bumper order backlogs. And Rolls-Royce’s Trent engines remain the industry standard when it comes to flight power, while its TotalCare packages are a popular pick for airlines the world over.
With the global population increasingly taking to the skies, I believe the outlook is rosy for the airline industry as well as the world’s leading aircraft builders.