Aviation: multi-billion business that creates trillions - April 09, 2017

Aviation: multi-billion business that creates trillions

Aviation industry grew more than $200 billion in 10 years and it will go even further this year if the estimates are right. Passenger numbers are also growing, but profits are hectic, at least according to International Air Transport Association’s (IATA) data.

According to IATA’s statistics, the revenues in aviation grew significantly in the last decade, from $413 billion to a forecast $735 billion. We can see that the financial crisis did not help this industry either: not only revenues went south but profits were hurt badly. It’s also obvious from the charts that aviation as a business is rather costly: usual profit margins are under 5% in the industry, even in better years.

Performance of Aviation Industry (2005-2017)

Although the traffic volumes also show constantly growing passenger numbers in the last years, during the crisis, cargo shipments fell just as much as profits did.

Traffic Volumes in Aviation (2005-2017)

But what makes aviation such a costly industry? According to IATA, the obviously high kerosene fuel prices are just a small portion of the costs. It takes up between 19-30% of all prices, depending on the year. The rest is all the other expenses. A huge concern for IATA is the price of airports and air navigation infrastructure as airlines paid $118.9 billion for them in 2015 and almost $10 billion more in 2016.

Still, the industry is growing and that’s no wonder: it helps economy in general, according to Oxford Economics’ study. They found that “aviation’s total global economic impact is $2.7 trillion including direct, indirect, induced and the catalytic effects of tourism”. They also found that 54% of international tourists travel by air and 35% of “interregional exports of goods by value” were carried by aviation too.

This multi-billion industry is lead mostly by American and European parties but Asia is there as well. According to the Forbes 2000 list from 2016, the biggest airline by revenue is American Airlines Group closely followed by two other American corporations.

Revenues of the Biggest Airlines

It’s important to mention that Emirates Airlines is not public but government-owned, therefore, it was not on the original Forbes list, only Innovative Securities added it based on their annual report. The list can also vary quite a lot if we sort the companies by passenger numbers or fleet size.

The United States’ dominance can be seen geographically too. Most revenue and profit are generated in North America. But IATA’s numbers suggest that this may change as the Middle East and Asia-Pacific is growing faster than other regions. What’s more: Middle East is the only region with a constant double digit passenger traffic growth since 2011.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving high returns on their investments.