How airlines make 'less than $6 per passenger'
By Dean Irvine, CNN • Updated 3rd June 2014
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The aviation industry thrives on big numbers.
A century after the first commercial flight took off, around $746 billion is expected to be spent this year on global air travel, a record 3.3 billion passenger journeys will be taken and 1,400 new aircraft help will whisk them across the skies.
But among these impressive figures there is a much smaller one that airlines are really taking note of: $5.42
That's the average profit made by airlines for each passenger they carry.
"With a net profit margin of just 2.4%, airlines only retain $5.42 per passenger carried," said Tony Tyler CEO of International Air Transport Association (IATA) at the group's 70th AGM in Doha, Qatar.
"There is a mismatch between the value that the industry contributes to economies and the rewards that it generates."
According to recent figures from IATA just two years ago the average post-tax profit per passenger was only $2.05, so things are improving for the industry.
The industry is expected to make a post-tax profit of $18 billion this year, up from $10.6 billion last year and a record amount.
However Brian Pearce, chief economist for IATA cautions that's because of the total revenue and not a record in terms of profit margin.
"It's always very cyclical," he says. "If you look at the last 20 years the average net profit margin for airlines in terms of revenue is zero."
It's remarkable that the industry is making any profit at all, added Pearce, given record high fuel prices over the last few years.
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"A 2.4% (profit margin) and people would laugh at you in other industries," says Willie Walsh of International Airline Group.
"There's something wrong with this industry where we as the providers of this service almost feel are embarrassed to talk about profitability and some people that buy our products don't believe we should be allowed to make a profit -- it's madness."
For others at the sharp end of the industry, the quest for profits is an ongoing battle.
"We're the wrong part of the food chain," says JetBlue Airways CEO David Barger. "Airports and financiers, you look at the profit margins of them versus to airlines. But we recognize we're the wrong part and you have to be innovative."
Pearce suggests that if fuel prices -- one of the biggest costs to airlines -- were to fall, then because of the keenly competitive nature of the industry it would be the customer that would be the beneficiary.
Even with high fuel prices IATA forecasts that on average fares this year will fall by around 3.5%.
The profits the industry has made are mainly because of cost-cutting in the industry through improved efficiency and consolidation, plus the way that airlines package their products, most notably through giving passengers more choice in what kind of options they want with a flight.
That also gives airlines other ways to make a few dollars with ancillaries like baggage charges or seat preferences.
Yet the lament from Tyler and IATA remains that airlines and those in the commercial aviation industry are still hampered by high taxation and low profitability.
"Airlines can operate profitably and provide fantastic value of service. The one principle (that governments should have) is treat airlines like any other industry," says Tyler.
IATA is meeting 100 years after the first commercial flight that took place across Tampa Bay with just one passenger on board. It's not known how much profit the operator made on that flight.
