Now that the first quarter of fiscal 2016 now in the past, results are in from IATA’s most recent airline business confidence survey, and gauging from the responses of airline CFOs and cargo heads surveyed – their outlook is bullish for the remainder of the year, despite a perceived weak first quarter. IATA’s survey takes a measure of five key indicators: profitability, demand, input costs, yield and employment and asks respondents to reflect on the past three months, as well as their outlook for the year ahead.
Beginning with the outlook for industry profitability, results from cargo and passenger respondents were combined – but the majority of respondents, 74.2 percent expect profitability to remain flat or improve over the next twelve months. Looking back on the first quarter, 51.6 percent of respondents believed industry profitability improved, y-o-y.
Moving on to demand growth, U.S. West Coast port disruptions, which led to a surge in demand in Q1 2015, were the likely cause of more than one-quarter of respondents reporting lower volumes in Q1 2016 relative to the year prior. For the next 12 months, those surveyed were optimistic about cargo demand, with 43.3 percent expecting stability and 43.3 percent expecting growth. Looking at the weighted score of demand growth over the past five quarters, IATA added that, although “the weighted average score for freight over the next 12 months remains in positive territory… it is currently at its lowest level since April 2011.”
To no one’s surprise, the massive drop in global crude oil prices has led to a reduction in jet fuel prices, with two quarters of respondents reporting a decline during the first quarter of 2016. Looking ahead, more than four out of five respondents, 80.6 percent, felt input costs would either remain stable or continue to fall.
Closely coupled with falling input costs, and compounded by a surge in bellyhold and maindeck capacity without sufficient growth in global trade, cargo faces a difficult yield environment. Half of respondents saw yields fall during the first quarter, and there is little hope of improvement during the year ahead. Only 7.1 percent of respondents expect yields to rise, while 46.4 percent expect a continued fall.
Lastly, although the majority of employment level growth has and continues to be driven by strong passenger growth, an overwhelming majority of respondents (83.8 percent) expect employment levels to remain stable, or increase during the next twelve months.