Moody's keeps stable outlook for global airline industry

The Dollar Business Bureau 

Moody’s on Tuesday kept its stable outlook on the world’s airline industry, as the credit ratings agency expects the decline but still-robust operating margins likely to continue. However, it warned that increasing fuel prices poses headwinds. 

The rating agency projects the average operating margins of rated carriers to reach 9% in 2017 and around 8% next year, from an estimated 10.8% in 2016. 

“This falling trend shows declines in airlines’ operating profit of around 11% in 2017 and around 12% in 2018, broadening from an estimated 1.2% contraction last year,” the international rating agency said in a note released from its headquarters in New York. 

Though the outlook is likely to remain stable, fuel prices and capacity utilisation and addition will be crucial to forthcoming earnings trend, it warned. 

However, the agency quickly added that these changes arise within its range of (-) 20% to (+) 20% for a stable outlook. 

“American carriers will still have the industry’s highest operating margins, despite being on track to drop by about 20 per cent over the next 12-18 months due to modestly higher fuel and increases in labour costs under new union contracts agreed to in 2016 at major airlines,” said Jonathan Root, Vice President and a Senior Credit Officer. 

The demand for passengers will continue to go upwards, although a little slow, buoyed by modest but stable economic growth worldwide and rising air travel in the developing economies. 

However, average capacity growth will outpace aggregate demand growth by around half a percentage point in the wake of relatively low fuel cost, growth of low-cost airlines and availability of older aircrafts coming off leases. 

According to International Air Transport Association (IATA), capacity growth will vary across the geographic regions, with the US to witness low single-digits growth, the Europe growing in mid-single digits, and developing markets such as Asia and Middle East to grow at about 7.5% and 10%, respectively. Unrated carriers will lead the capacity growth in Latin American market in 2017. 

Though India is the fastest-growing market for civil aviation, the report does not say anything about China, which is the world’s second biggest aviation market after the US.