The latest quarterly survey of airline CFOs and heads of cargo points to further year-on-year gains in profitability during the first quarter 2016, following a record year in 2015. However, expectations of further gains in profitability over the year ahead have eased markedly in recent surveys, as yields have come under strong downward pressure and expectations of future cost reductions have diminished.

The results of the survey undertaken by IATA in April were consistent with the strong start to the year for passenger volumes, and are in keeping with the mixed start of the year for air cargo. Long-run expectations for growth remain positive for both passenger and cargo businesses, although expectations

for cargo have moderated since the start of 2015 as the ongoing weakness of global trade growth and other structural headwinds have risen to the fore.

More than two-thirds of respondents in the IATA survey reported a decrease in operating costs in the first quarter of 2016, consistent with wider developments in the crude oil market. Lower input costs and increased competition are putting downward pressure on passenger yields, while ongoing increases in freight capacity are expected to continue to weigh heavily on freight yields over the year ahead.

Last year set a record year for profitability in the airline industry and April’s survey of airline CFOs and cargo heads shows that over half expected profitability in the first quarter of 2016 to have increased relative to the same period in 2015. That said, the picture from the survey was not as uniformly positive as it was this time last year. Thirty-nine percent of respondents expected a deterioration in year-on-year profitability in Q1 – the highest proportion since early 2014 before the latest drop in oil prices.

Looking ahead, while the overall picture for the level of profitability remains positive, the latest results show that fewer respondents now expect further improvements from the record level seen in 2015. This reflects downward pressure on yields and ongoing uneven and modest global economic growth prospects. Just under 42 percent of respondents expected profitability to increase over the next 12 months, but the proportion expecting profitability to remain unchanged increased to one-third. All told, the weighted-average score was the lowest in four years.

On the freight side, over one-quarter of respondents reported lower volumes in the first quarter of this year as compared to the same period in 2015, in part linked to disruption at U.S. west coast seaports during last year which boosted air cargo volumes. The ongoing weak underlying global trade backdrop is taking its toll on expectations of future growth. While the weighted average score for freight over the next 12 months ahead remains in positive territory, it has trended down over the past five quarters and is currently at its lowest level since April 2011.

More than two-thirds of respondents reported a decrease in operating costs in Q1 2016. The price of jet fuel, which accounts for around one-third of total industry costs, was 39 percent lower in the first quarter of this year in year-on-year terms. Oil prices rallied in the weeks leading up to this survey and the proportion of respondents expecting

further decreases in input costs over the coming 12 months dropped to less than 39 percent. As the scope for big further gains is reducing, input costs are still expected to fall over the coming 12 months

as fuel hedges continue to roll off and, in some cases, exchange rate dynamics become less of a headwind.

Ongoing strong capacity growth continues to put acute pressure on cargo yields. Half of the survey respondents reported year-on-year decreases in cargo yields in Q1 2016. The weighted average score

for yields over the past three months has been rooted in negative territory since the start of 2012. The results of the April survey show that cargo heads increasingly expect further falls in yields over the next 12 months; a combined 93 percent of respondents expect yields to remain unchanged or to fall further in the year ahead.