Airlines around the world are collectively expected to post US$38.4 billion in profits in calendar 2018 amid strong passenger demand and an improvement in the cargo sector.
The forecast, presented by International Air Transport Association (IATA) director general and chief executive Alexandre de Juniac at the industry body’s media day in Geneva on Tuesday (European time), represents an improvement from the US$34.5 billion estimated profit for calendar 2017.
The 2018 result would be achieved on revenues totalling US$824 billion – an increase of 9.4 per cent from expected revenues of US$754 billion in calendar 2017 – which equates to a net profit margin of 4.2 per cent.
IATA noted 2018 was expected to be the fourth consecutive year of sustainable profits, with a return on invested capital of 9.4 per cent exceeding the industry’s average cost of capital of 7.4 per cent.
“These are good times for the global air transport industry,” de Juniac said in a statement.
“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.”
Further, de Juniac said the industry remained committed to safety and had a clear strategy to reduce its environmental footprint.
However, there were some longer-term challenges in the period ahead, such as rising costs due to oil prices, labour and infrastructure expenses.
“Many of them are in the hands of governments,” de Juniac said.
“To continue to deliver on our full potential, governments need to raise their game – implementing global standards on security, finding a reasonable level of taxation, delivering smarter regulation and building the cost-efficient infrastructure to accommodate growing demand.”
The rise in profitability comes as airlines continue to add new routes across the world, with IATA figures showing the number of unique city pairs exceeded 20,000 for the first time in 2017.
The milestone was reached 21 years after hitting the 10,000 mark in 1996.
IATA said revenue passenger kilometres (RPK), a measure of demand, was forecast to grow six per cent in 2018. While this was lower than the likely 7.5 per cent improvement in RPKs in 2017, the figure was still above the 10-15 year average of 5.5 per cent.
It was also above expected capacity growth, measured by available seat kilometres (ASK), of 5.7 per cent.
With demand growing ahead of capacity, yields, an industry measure of average airfares per passenger per kilometre, was expected to grow three per cent in calendar 2018.
Meanwhile, IATA said the cargo business was expected to continue to “benefit from a strong cyclical upturn in volumes, with some recovery in yields”.
“The boost to cargo volumes in 2017 was a result of companies needing to restock inventories quickly to meet unexpectedly strong demand,” IATA said.
“This led cargo volumes to grow at twice the pace of the expansion in world trade.
“While restocking cycles are usually short-lived, the growth of e-commerce is expected to support continued momentum in the cargo business beyond the rate of expansion of world trade in 2018.”
IATA described costs as the “biggest challenge to profitability” in 2018, with jet oil prices expected to jump 12.5 per cent in 2018 compared with 2017 levels.
Fuel was tipped to comprise 20.5 per cent of total costs for airlines in 2018, up from 18.8 per cent in the prior year.
“Airlines with low levels of hedging (in the US and China for example) are likely to feel the impact of this increase more immediately than those with higher average hedging ratios (Europe),” IATA said.
Staff wages are also on the rise, with labor costs likely to comprise 30.9 per cent of all airline costs in 2018, making it a larger component than fuel.
On a positive note, the recent run of industry profitability has allowed airlines to pay down debt and reduce interest payments.