Higher profits for airlines in 2018

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IATA sees strong airline profitability next year

The airline industry’s net profit will rise to $38.4 billion in 2018, the International Air Transport Association forecasts, up from the $34.5 billion expected profit in 2017, which is itself revised upward from a $31.4 billion forecast in June.

Strong demand, efficiency and reduced interest payments will help airlines improve net profitability next year, despite rising costs, IATA predicts.

It will be “the fourth consecutive year of sustainable profits”, with a return on invested capital (9.4%) exceeding the industry’s average cost of capital (7.4%).

“These are good times for the global air transport industry,” declares Alexandre de Juniac, IATA’s director general and CEO.

“Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. More people than ever are travelling. […] Employment is growing. More routes are being opened. Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses.”

He adds: “The industry also faces longer-term challenges. Many of them are in the hands of governments. Aviation is the business of freedom and a catalyst for growth and development. 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 benefits of aviation are compelling, de Juniac says, with 2.7 million direct jobs and “critical support for 3.5% of global economic activity”.

Record load factor
Passenger numbers are expected to rise to 4.3 billion in 2018, and passenger traffic (revenue passenger kilometres or RPKs) up 6% (slightly down on the 7.5% growth of 2017 but still ahead of the 5.5% average of the last 10-20 years), which will exceed a capacity expansion (ASKs) of 5.7%.

This will push up the average load factor to a record 81.4%, helping to drive a 3% improvement in yields, IATA says.

Revenues from the passenger business are expected to grow to $581 billion (+9.2%). This strong performance is supported by expected GDP growth of 3.1% (the strongest since 2010).

In Europe, airlines are expected to deliver a net profit of $11.5 billion in 2018, up from $9.8 billion in 2017. Announced capacity increases of 5.5% trail the expected 6% growth in demand in 2018, supporting a strengthening of the region’s performance.

European airlines are benefiting from a strong recovery in home markets, including Russia, a rebound from the terrorism events of 2016 and some consolidation following the failure of several regional airlines, IATA concludes.

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