Rising costs to hit airline profits in 2018

SYDNEY: June 04, 2018. IATA is forecasting a drop in its member airlines’ collective net profit from US$38.0 billion in 2017 to US33.8 billion this year, as a result of rising fuel, labour and interest rate costs.

The association says profits at the operating level have been trending slowly downwards since early 2016.

“The industry’s financial foundations are strong with a nine-year run in the black that began in 2010,” declared IATA director general and CEO Alexandre de Juniac. “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,” he continued.

Qantas and Air New Zealand The return on invested capital is expected to drop from 9.0 percent in 2017 to 8.5 percent this year as the average cost of capital has risen to 7.7 percent from 7.1 percent year-on-year.

Collective airline revenues are expected to rise from US$754 billion to US$834 billion in 2018 as demand from passengers and shippers continues to expand.

IATA notes the beneficial effect on the air cargo industry as a result of a global rush to re-stock business inventory has now ended, and forecasts 4.0 percent growth in 2018.

Despite the addition of 1,900 aircraft to airline fleets this year, it expects a 5.1 percent rise in yields this year prompted by the demand for pharmaceuticals, e-commerce and other premium cargo services. As a result, total flown cargo is expected to rise from 61.5 million tonnes to 63.6 million by the end of 2018.

The association notes a growing risk to the industry as a result of the politics of protectionism, the US withdrawal from the Iran nuclear deal, Britain’s continued lack of clarity on Brexit and continuing geopolitical conflicts.

“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 globalization,” said de Juniac.