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Air fares are expected to drop next year as falling oil prices and strong worldwide GDP growth help airlines post record profits, according to the International Air Transport Association (IATA).
The Geneva-based trade body are predicting return air fares (excluding taxes and surcharges) will fall 5.1 per cent on 2014 levels, as consumers benefit from strong industry performance and lower industry costs.
IATA said due to the “highly competitive” nature of the airline business, savings made will be passed onto travellers.
It comes as an IATA outlook report shows profits for the global airline industry will reach $25 billion in 2015, which equates to a 3.2 per cent profit margin. On a per passenger basis, airlines will make a net profit of $7.08 in 2015. That is up on the $6.02 earned in 2014 and more than double the $3.83 earnings per passenger achieved in 2013.
IATA also increased its profit forecast for 2014 to $19.9 billion, up from its earlier prediction of $18 billion.
"The industry outlook is improving. The global economy continues to recover and the fall in oil prices should strengthen the upturn next year," said IATA director general Tony Tyler.
However, Tyler warned that a margin of 3.2 per cent is small especially when there are a number of risks to the aviation industry such as political unrest, conflict and weak regional economies. He added it doesn’t leave much room for “deterioration in the external environment before profits are hit”.
“Stronger industry performance is good news for all. It’s a highly competitive industry and consumers—travellers as well as shippers—will see lower costs in 2015 as the impact of lower oil prices kick in.
“Airline investors will see ROIC move closer to the WACC. And a healthy air transport sector will help governments in their overall objective to stimulate the economic growth needed to put the impact of the global financial crisis behind them at last," he added.