Many govts failing to recognise aviation sector as key contributor to economy: Iata

Miami: Many countries do not understand the potential of the aviation industry which remains “highly constrained” by high taxes and regulations, though the sector is set to contribute a whopping $116 billion in revenue worldwide this year, global airlines’ body Iata has said in Miami.[caption id=“attachment_2197000” align=“alignleft” width=“380”]  Representational image: Reuters[/caption] “Governments have gained substantially from the good performance of the airline industry. Airlines and their customers are forecast to generate $116 billion in tax revenues this year,” the International Air Transport Association (Iata) said in a latest mid-year report on the industry’s financial performance. The report, released at the Iata’s 70th annual meet in Miami by chief economist Brian Pearce, said this tax revenue was equivalent to nearly 48 percent of the industry’s gross value added (equivalent to GDP), which is paid to governments in payroll, social security, corporate and product taxes. In addition the industry continues to create high value added jobs. “But in many countries the value of aviation for governments, and the wider economy, is not well understood. The commercial activities of the industry remain highly constrained by bilateral and other regulations. Moreover, regulation is far from ‘smart’ with unnecessarily high costs in many situations,” Pearce said in the report. Passenger rights and consumer protection laws were “one example of well-intentioned but badly designed regulation that can lead to disproportionate, inconsistent and badly targeted costs,” Pearce and his team said at a press conference in Miami. Without going into country-specific details, he said there were 59 regimes now in force in several countries, which affect the airlines’ interests. On the aviation industry’s financial performance, he said the airlines in Asia-Pacific have “very diverse performances”, with some of them showing profits and the others losses or just about meeting costs. “On average, profit per passenger is $4.24 as lower fuel costs and stronger cargo markets, particularly important in this manufacturing region of Asia-Pacific, help to boost net margins moderately to 2.5 percent and net profits to $5.1 billion,” he said. Regarding the overall returns to investments, the report said the equity owners have not been rewarded adequately for risking their capital in most years, except at a handful of airlines. “Such is the intensity of competition, and the challenges to doing business, that average returns are rarely as high as the industry’s cost of capital. Equity investors have typically seen their capital shrink,” Pearce said. However, this year “we expect the industry to generate a return on invested capital of 7.5 percent, which does, for the first time, adequately reward equity owners”. While all regions are expected to see an improvement in profitability in 2015 compared with 2014, there are, however, stark differences in regional economies, which are also reflected in airline performance. “The industry’s fortunes are far from uniform. Many airlines still face huge challenges,” said Tony Tyler, Iata’s director general and CEO. On invested capital of almost $700 billion, the global industry is forecast to generate $4.9 billion of value for investors this year, the report said. “But it should be clear that $29.3 billion net profit, while exceptional for the airline industry, is really only just sufficient to pay investors a normal return for risking their capital. Moreover, high returns are not widely spread in the industry outside North America,” it added. The Iata report also announced an upward revision of the 2015 industrial outlook to $29.3 billion, saying on an expected total global revenue of $727 billion, the industry would achieve a four percent net profit margin. PTI