Friday 29 Mar 2024
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KUALA LUMPUR (Jan 19): Moody's Investors Service has changed its outlook on the global airline industry to positive from stable as the sharp drop in fuel costs will bolster financial performance.

In a statement Jan 18, Moody’s projected adjusted operating profit margins for the industry of 12%-14% in 2015 and 11.5%-13.5% in 2016, significantly above its estimate of 8.5%-9.5% for 2014.

Moody’s vice president and senior credit officer Jonathan Root said US carriers will continue to garner the largest increases, leading to stronger performance relative to airlines based in
increasingly competitive developing markets, and in Europe.

He said this in conjunction with Moody’s report entitled "Lower Fuel Costs to Boost Operating Profit Margins; Yield Growth Still Constrained."

The outlook reflects Moody's expectations for the fundamental business conditions in the industry over the next 12 to 18 months.

Moody’s said passenger demand would also increase due to steady economic growth, higher disposable incomes and rising air travel in developing economies.


It said passenger demand, which is measured as revenue passenger kilometers (RPKs), was estimated at 5%-6% in 2015 and 2016.

Meanwwhile, yields are forecast at flat to 2% in 2015 and 1%-3% in 2016, however.


Despite the slower yield growth, Moody's says its profit margin and RPK forecasts support a positive outlook.

It said with the average price of jet fuel declining US$1 per gallon or more in 2015, aggregate fuel costs for rated US airlines would
decline as much as US$15 billion, including the impact of hedging.

Moody’s said airlines outside the US would also benefit from declining fuel costs in 2015, but face larger hurdles for similar profitable gains.

It added that the US airlines' savings are unlikely to be passed on to customers as record-high load factors and sustained demand lessen the incentive to do so.

Moody's said the windfall would be used for debt reduction, aircraft purchases and shareholder returns.

It said longer-haul flights will see fares decline, particularly in Asia, where fuel charges were more prevalent and regulated by some governments.

“Capacity growth will continue to remain balanced to passenger demand in the US, Australia and Europe as the airlines seek to earn acceptable financial returns.

“In Asia, capacity growth will outstrip demand growth; however operators are not likely to add extra capacity in 2015, even with the lower fuel prices,” it said.

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