The International Air Transport Association (IATA) projects the global airline industry to rake in $29.8 billion net profit in 2017, representing a 4.1 per cent growth rate compared to this year.

According to IATA projections, airlines will make a return on invested capital of 7.9 per cent, which is above the weighted average cost of capital of 6.9 per cent, making it the third consecutive year the sector is expanding. However, African carriers are projected to make a combined net loss of $800 million next year.

IATA revised downward its outlook for 2016 airline industry profitability to $35.6 billion from the June projection of $39.4 billion, owing to slower global GDP growth and rising costs. This will still be the highest total profit generated by the global airline industry, which will also register the biggest net profit margin of 5.1 per cent, said Alexandre de Juniac, the IATA Director General and chief executive.

"Airlines continue to deliver strong results. This year, we expect a record net profit of $35.6 billion. Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8 billion. Though that’s still within a profitable territory,” de Juniac told The New Times in Geneva, Switzerland last week.

"The past three years have recorded the best performance in the industry’s history, irrespective of the many uncertainties we face. Indeed, risks are abundant political, economic and security among them…Controlling costs is still a constant battle in our hyper-competitive industry,” the IATA chief added.

"We need to put this into perspective...Record profits for airlines means earning more than our cost of capital. For most other businesses that would be considered a normal level of return to investors. But three years of sustainable profits is a first for the airline industry. After many years of hard work; restructuring and re-engineering the business, the industry is now more resilient. We should also recognise that profits are not evenly spread with the strongest performance concentrated in North America.”

Embracing open sky policy

Meanwhile, the IATA chief executive has urged African governments to embrace open sky policy, arguing that it is essential to support growth for the continent’s airlines.

He also said poor infrastructure development and high taxes levied on African airlines were hurting the aviation industry on the continent, making it less profitable.

According to IATA, African carriers are expected to register the weakest financial performance with a net loss of $800 million in 2017, unchanged compared to this year. He said airlines will suffer an average loss of $9.97 for each passenger flown, higher than 4.7 per cent capacity growth in 2017, and 4.5 per cent expansion in demand.

IATA attributed the African region’s weak performance to conflicts and the impact of low commodity prices. Brain Pearce, IATA’s chief economist, said 2017 is projected to be the eighth year in a row for global airlines to record some profitability, "illustrating the resilience to shocks that have been built into the industry structure”. On average, airlines will retain $7.54 for every passenger carried, he said.

According to John Mirenge, the RwandAir chief executive officer, the lack of an open sky policy is by far the most challenging factor to the continent’s aviation industry.

"The reluctance by many African governments to implementation the Yamoussoukro Protocol on open skies is still big challenge to the industry. This means we cannot cover the undeserved destinations on the continent competitively. Secondly, the volatility in oil prices makes it difficult for airliners to plan accordingly,” Mirenge noted.

He added that the cost of aviation businesses was still increasing due to high operation fees.