Moody's: Airline Profits Will Continue To Rise On Low Fuel Prices

KUALA LUMPUR, Jan 15 (Bernama) -- Global airline industry profits will remain strong amid lower fuel prices in 2016, supporting a positive outlook on the industry for the next 12 to 18 months, said Moody's Investors Service. In a statement, Moody's said it expected the airline industry's operating margins to top 10 per cent this year. "US carriers will continue to maintain the highest operating margins, owing partly to a mature domestic market and their modest exposure to weaker foreign currencies," according to the report titled, "Global Airline Industry: Margins to Rise on Lower Fuel Prices, Steady Demand Growth; Yields to Remain Flat." Vice-President - Senior Credit Officer Jonathan Root said growing passenger demand, especially in the Middle East, Asia and Latin America would help boost margins for the overall airline industry. "Demand is rising due to modest but steady global economic growth, higher disposable incomes amid lower petroleum prices, attractive fares, and the growth of air travel in the developing world," said Root. However, capacity additions exceeding demand growth, the strong US dollar and lower fuel surcharges would constrain yield growth. Furthermore, Moody's did not expect fuel price drops to lead to a more meaningful expansion of industry operating margins. "Higher labour costs, continuing revenue pressures, fuel hedging and a potentially stronger US dollar will mitigate the benefits of the price decline. "Hedging fuel price risk, extensively with collars and call spreads that leave airlines exposed to potential declines in prices, limits the benefits from cheaper fuel prices," added Root. -- BERNAMA