IATA: airline net profits to keep climbing in 2018

12-06-2017 2:18 pm

Strong demand, efficiency and reduced interest payments will contribute to rising global air transport profits, which are expected to rise to $38.4 billion in 2018, the International Air Transport Association said in its latest industry forecast.

The latest figure is up from the $34.5 billion expected net profit in 2017, IATA said, with next year expected to be the fourth consecutive year of sustainable profits with a return on invested capital (9.4 per cent), exceeding the industry’s average cost of capital (7.4 per cent).

"These are good times for the global air transport industry,” said Alexandre de Juniac, IATA’s Director General and CEO. “Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. More people than ever are traveling. The demand for air cargo is at its strongest level in over a decade. Employment is growing. More routes are being opened. Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labor and infrastructure expenses."

Passenger numbers are expected to increase to 4.3 billion in 2018. Passenger traffic (revenue passenger kilometers or RPKs) is expected to rise six per cent (slightly down on the 7.5 per cent growth of 2017 but still ahead of the average of the past 10-20 years of 5.5 per cent), which will exceed a capacity expansion (available seat kilometers or ASKs) of 5.7 per cent. This will push up the average load factor to a record 81.4 per cent, helping to drive a three per cent improvement in yields. Revenues from the passenger business are expected to grow to $581 billion (up 9.2 pe cent on $532 billion in 2017). Strong performance of the passenger business is supported by expected robust GDP growth of 3.1 per cent (the strongest since 2010).

The biggest challenge to profitability in 2018 is rising costs, as crude oil and jet fuel prices are expected to increase 10.7 per cent and 12.5 per cent respectively. The fuel bill is expected to be 20.5 per cent of total costs in 2018, up from 18.8 per cent in 2017.

Labour costs have been accelerating strongly and are now a larger expense item than fuel (30.9 per cent in 2018), while overall unit costs are expected to grow by 4.3 per cent in 2018, a significant acceleration on the 1.7 per cent increase in 2017. This will outpace an expected 3.5 per cent increase in unit revenues, IATA said.

Regarding regional outlooks, all regions are expected to report improved profitability in 2018 and all regions are expected to see demand growth outpace capacity expansion.

Carriers in North America continue to lead on financial performance, accounting for nearly half of the industry’s total profits; airlines in this region are forecast to generate the strongest financial performance with net profits of $16.4 billion in 2018 (up from $15.6 billion in 2017). Market conditions are expected to continue to be strong, with announced capacity growth (3.4 per cent) likely to be slightly less than our traffic forecast of 3.5 per cent.