SINGAPORE • The International Air Transport Association (IATA) cut its profit target for the global aviation market this year, predicting lower returns than six months ago as rising fuel prices and labour costs eat into the industry.
Net income for 2018 is likely to total US$33.8 billion (RM135.2 billion), 12% lower than a December forecast for US$38.4 billion, the industry’s main trade group said in a statement in Sydney. The new forecast compares to an all-time high of US$38 billion airlines made last year, which was boosted by special accounting like one-off tax credits, IATA said.
“At long last, normal profits are becoming normal for airlines,” Alexandre de Juniac, IATA’s DG and CEO, said in the statement referring to continued profits for the ninth straight year. “This enables airlines to fund growth, expand employment, strengthen balance sheets and reward our investors.”
North American airlines, with a net profit of US$15 billion, will contribute the most to the industry’s earnings, apart from posting the highest margins and return on capital, IATA said. Apart from Africa, all other regions will remain profitable. Carriers in Asia Pacific, the fastest growing region in terms of passengers, will earn US$8.2 billion, just behind European airlines’ US$8.6 billion.
Upturn in interest rates is also another reason affecting profit, the airline group said. Growing uncertainty in global affairs, including a protectionist agenda by some political forces, US withdrawal from the Iran nuclear deal and lack of clarity on the impact of Brexit are risks to the industry’s outlook, IATA said.
While fuel costs top the list of expenses for most airlines, it is wages for US carriers. Brent crude prices have risen 55% in the past year and touched a 31⁄2-year high last month. It’s inevitable that airlines will have to pass some of the fuel burden onto passengers, de Juniac said last Thursday in Sydney. IATA represents about 280 carriers worldwide, or 83% of total air traffic.
American Airlines Group Inc said the carrier is managing to soak up rising fuel costs for the moment, but it may have to raise prices if those levels become “the new normal”. Qantas Airways Ltd said its domestic business “can continue to digest” higher fuel prices. IndiGo, India’s biggest airline, said last week it is reintroducing a fuel surcharge citing the rise in oil prices.
IATA also said:
Inflation pressures are starting to emerge at this late stage of the economic cycle and airlines are facing significant pressures from rising fuel and labour costs in particular. Fullyear average cost of Brent seen at US$70 a barrel, while jet fuel prices may rise to US$84 a barrel. Passenger air travel is forecast to expand by 7% in 2018, compared to 8.1% in 2017. Cargo growth to slow to 4% from 9.7% in 2017, as a restocking cycle by business on the back of a strong economy comes to an end.
The 2018 average return airfare, before surcharges and tax, is expected to be US$380, which is 59% below 1998 levels after adjusting for inflation. Average air freight rates in 2018 are expected to be US$1.80/kg, which is a 63% fall from 1998 levels. — Bloomberg