Moody's revises outlook on global airline industry to positive

On the back of steep fall in the crude prices, international rating agency Moody's has changed its outlook of the global airline industry to "positive" from stable.

It projected adjusted operating profit margins for the industry at 12-14% for 2015 and 11.5-13.5% for 2016, significantly up from its estimate of 8.5-9.5% for 2014.

While American carriers will continue to have the largest increase in profit, in Asia the capacity growth will outstrip the demand growth, it said.

Moody's vice-president and senior credit officer Jonathan Root said in the report that Asian airlines are unlikely to add extra capacity in 2015, even with lower fuel prices.

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

Passenger demand will also increase due to better economic growth, higher disposable incomes and rising air travel in developing economies, it said, pegging the passenger growth at 5-6% in 2015 and 2016.

However, it sees the yields remaining flat at 2% in 2015 and 1-3% in 2016. Despite slower yield growth, Moody's says rising profit margins and revenue from passengers support a positive outlook.

With the average price of jet fuel declining $1 per gallon or more in 2015, Moody's says aggregate fuel costs for American airlines will decline $15 billion, including the impact of hedging.

Airlines outside the US will also benefit from declining fuel costs but face larger hurdles for similar profitable gains.

It also sees ticket prices to remain stable as airlines are unlikely to pass on the savings from lower fuel cost to customers, due to rising demand. Moody's says the windfall will be used for debt reduction, aircraft purchases and shareholder returns.

However the report sees some price cuts in Asia's longer-haul sectors.