IATA: Profits to remain strong despite rising costs

0
233
Alexandre de Juniac speaking at IATA AGM 2018 in Sydney, Australia

The International Air Transport Association (IATA) has revised its profit expectation for airlines down to $33.8 billion for 2018 due to rising fuel and labour costs.

Airlines are predicted to have a 4.1 per cent net profit margin in 2018, but the net profit prediction is down from the forecast of $38.4 billion in December 2018.

In 2017, airlines earned a record $38 billion, which was revised from the previously estimate of $34.5 billion, but comparisons are distorted by special accounting items such as one-off tax credits helping 2017 figures.

Profits at the operating level have been going slowly downwards since early 2016 as a result of accelerating costs.

IATA director general and chief executive officer, Alexandre de Juniac says: “Solid profitability is holding up in 2018, despite rising costs. The industry’s financial foundations are strong with a nine-year run in the black that began in 2010. And the return on invested capital will exceed the cost of capital for a fourth consecutive year.

“At long last, normal profits are becoming normal for airlines. This enables airlines to fund growth, expand employment, strengthen balance sheets and reward our investors.”

The association says that inflation pressures are starting to emerge at this stage of the economic cycle.

Brent Crude is expected to average $70 a barrel, up from $55 in 2017 and the previous 2018 of $60 a barrel, while jet fuel prices are expected to rise 26 per cent to $84 a barrel.

Cargo demand has benefited from the largely unexpected acceleration in growth of the global economy, with businesses turning to air transport to replenish inventory, producing strong growth in 2017.

Cargo demand is expected to grow by four per cent in 2017, a major drop on the 9.7 per cent growth of 2017 but in line with the 20 year trend growth rate.

Pharmaceuticals, e-commerce and other premium cargo services are expected to lead growth in 2018, with yields expected to improve by 5.1 per cent.

Global affairs could affect the industry’s outlook, with rising protectionism, the US withdrawing from the Iran nuclear deal, lack of clarity on Brexit, numerous ongoing trade discussions and continuing geopolitical conflicts.

De Juniac says: “Aviation spreads prosperity and enriches the human spirit. That truth lays the foundation for a very important message. The world is better off when borders are open to people and to trade. And our hard work as an industry has primed aviation to be an even stronger catalyst for an ever more inclusive globalisation.”