The world's airlines generated profits of around 14.5% of their revenues in the third quarter of 2016, according to figures released by airline association IATA in the past week. Earnings before interest and tax were highest on average in Europe, at 17.5%, followed by 15.3% in North America.
IATA says that financial performance remains robust by historical standards but that momentum for profitability has weakened.
Even though profits are relatively healthy, airline yields have continued to fall in recent months. The fall in oil prices in 2015 has yet to feed through to yields. The chart below shows the trend in yields in past five years.
Source: IATA Economics, IATA PaxIS+, DIIO, Thomson Reuters Datastream
The important line to watch is the blue one, which takes out the effect of the rising dollar and shows yields at constant exchange rates to reveal the underlying trend. It shows that the intense downward pressure on yields has eased from that seen earlier in the year, but the trend is still pointing down. Yields fell by 7.6% year-on-year in the January-October 2016 period, says IATA.
Our second chart shows that premium traffic is helping airlines' revenues remain buoyant. While premium traffic has fallen to 5.2% of the total from 5.5% a year ago, premium fares as a proportion of total revenues has grown in most key markets (those at top left of this chart).
Source: IATA Economics, DIIO
Business travel remains a cash creator for airlines.