Falling oil prices could help boost a weak global economy and lower average airfares by 5 per cent in 2015, International Air Transport Association (IATA) has said.
The world’s airlines are expected to post a collective net profit of $19.9 billion (Sh1.791 trillion) for 2014, up from $18 billion (Sh 1.62 trillion) that IATA forecast in June and $25 billion (Sh2.25 trillion) in 2015.
“That’s a good result,” IATA chief economist Brian Pearce said in a statement. Oil prices have fallen to around $60 per barrel in recent months and this is expected to continue into 2015 with the full-year average price expected to be $85 per barrel (Brent), about 20 per cent lower than last year.
Pearce said that recent falling oil prices should mean that consumers will see “a substantial increase in the value they derive from air transport next year.” Oil prices are expected to average about $85 per barrel, about 20% lower than last year.
This will be a key driver in pushing down average round-trip airfares, before surcharges and taxes, to $458 in 2015, 5.1 per cent lower than in 2014.
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Global experts on energy say that if that assumption is correct, it would be the first time that the average oil price has fallen below $100 per barrel since 2010 when oil averaged $79.4 per barrel. Jet fuel prices are expected to average at $99.9 per barrel in 2015 for a total fuel spend of $192 billion which represents 26 per cent of total industry costs.
Analysts say the impact of lower fuel prices will be realised with a time lag, due to forward fuel-buying practices. By region, according to IATA, North America airlines are expected to post a net profit of $11.9 billion in 2014 and $13.2 billion in 2015. European carriers are forecast to post a net profit of $2.7 billion this year and $4 billion next year. Asia-Pacific airlines should post a net profit of $3.5 billion in 2014 and $5 billion in 2015.
Middle East airlines are expected to post of $1.1 billion this year, rising to $1.6 billion next year. Latin American airlines’ profit will be $0.7 billion in 2014 and $1 billion in 2015.
African carriers, the weakest region, will barely break even in 2014 but are expected to post a $0.2 billion net profit in 2015.
“The industry outlook is improving,” IATA CEO Tony Tyler said. He added the industry story is largely positive, but there are a number of risks – political unrest, conflicts, and some weak regional economies.
