Moody’s lifts global airline outlook on fuel savings

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Moody’s Investors Service has changed its outlook on the global airline industry to positive from stable as the sharp drop in fuel costs is expected to bolster the sector’s financial performance.

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Moody’s forecasts adjusted operating profit margins for the industry of 12 percent to 14 percent in 2015 and 11.5 percent to 13.5 percent in 2016, significantly above its estimate of 8.5 percent to 9.5 percent for 2014.

“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,” Moody’s Vice President, Senior Credit Officer Jonathan Root said in a statement.

Longer-haul flights will see fares decline, particularly in Asia, where fuel charges are 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.

PH airlines refrain from fuel surcharges
In the Philippines, local carriers —Philippine Airlines, Cebu Pacific and AirAsia—said they have complied with the directive of the Civil Aeronautics Board (CAB) that called on air carriers operating in the country to stop collecting fuel surcharges from passengers, given the sharp drop in global oil prices.

Fuel surcharges are a worldwide industry practice approved by government authorities. They are a temporary relief granted to airlines to help them recover losses incurred from higher jet fuel prices. Fuel accounts for 40 percent to 50 percent of an airline’s operating cost per passenger, and is the second-highest expense next to labor.

Earlier, CAB executive director Carmelo Arcilla said they have approved the removal of fuel surcharges on domestic or international carriers.

According to Arcilla, the order for the lifting of fuel surcharges was signed on January 6.

“With the substantial and continuous decrease of fuel prices in the world market, the Board has deemed it appropriate to compel airlines to discontinue their imposition of fuel surcharge,” CAB said.

CAB resolution number 79 MB 10-12-22-2014 states that on December 5 and 18 last year, the CAB called for a hearing with both domestic and foreign airlines to determine to propriety of maintaining the imposition of the fuel surcharges in light of the significant reduction in fuel costs. The airlines were required to report if they have reduced or lifted the imposition of the fuel surcharge or to explain why they have not done so.

Moody’s details its outlook change in the new report “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.

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