Airline profits set for return to growth on boost from lower oil


LONDON • Airline earnings are set to return to growth in 2019 after stuttering this year, boosted by lower jetfuel costs and expanding economies, the International Air Transport Association (IATA) said.

Industry-wide net income should jump 10% to US$35.5 billion (RM149.1 billion), with North America accounting for almost half of the total and Europe held back by fuel-hedging positions that will delay gains, according to the trade group. All regions apart from Africa should show positive figures.

The upbeat outlook assumes an average oil price of US$65 a barrel, versus US$73 this year, as well as global economic growth of 3.1%. That should produce an average net profit for airlines of US$7.75 per departing passenger, up 30 cents, though IATA cautioned that trade wars and Brexit could curb gains.

“We had expected that rising costs would weaken profitability in 2019, but the sharp fall in oil prices and solid GDP growth projections have provided a buffer,” Alexandre de Juniac, the organisation’s CEO, said at a briefing yesterday. “So we are cautiously optimistic that the run of solid value creation for investors will continue.”

The full benefit of the slide in jetfuel prices won’t be felt immediately in some regions because of “heavy levels of hedging,” according to De Juniac, who was previously CEO of Air France-KLM Group.

IATA revised its profit estimate for 2018 to US$32.3 billion, US$1.5 billion lower than a forecast in June and more than US$6 billion below the initial outlook a year ago. The new figure would represent a 14% decline compared to 2017’s all-time high of US$37.7 billion.

IATA also said, industry revenues should jump 8% to US$885 billion in 2019 as passenger numbers increase by about 250 million to 4.59 billion. Cargo volumes will advance 3.5% to 65.9 million metric tonnes. North American carriers will post a net profit of US$16.6 billion or US$16.77 per passenger, more than twice the global average, it said, aided by consolidation that’s removed excess capacity and boosted fares. Low levels of fuel hedging will also mean a quick impact from the oil price. Europe’s net earnings will fall slightly to US$7.4 billion as “intense competition” weighs on yields and air traffic control delays require carriers to provide refunds that totalled US$2 billion in 2018.

Higher levels of hedging will delay gains from falling fuel prices. Asia-Pacific carriers should see profit increase to US$10.4 billion, aided by strong regional economic growth and limited fuel hedging. The Mideast will see earnings increase by one-third, but only to US$800 million, IATA predicts.