Canadian airline profits expected to fall in 2018
Canada’s airline profitability, which reached a 20-year high last year, is expected to soften due to higher fuel and labour costs, according to a Conference Board of Canada report.
Airline pre-tax profits are forecast to drop 27 per cent to $1.32 billion as increasing costs outpace higher revenues that are forecast to approach $32 billion.
Canadian airlines posted their highest revenues and profits last year since the board began collecting data in 1997.
“Some of the main tailwinds Canada’s air transportation industry has benefited from in the past two years, primarily low fuel costs and a weaker loonie that is bolstering U.S. and foreign demand, will slowly reverse themselves over the next five years,” stated Conference Board economist Sabrina Bond.
Still, she said that shouldn’t put the industry’s expansion and profitability at risk as air travel demand continues to grow because of strengthening employment in Canada and the United States.
The Conference Board said fuel, which accounts for about a third of airline costs, will rise while employee costs will grow as new or expanded routes will require the hiring of 6,000 more people over the next five years.
By 2022, the industry is expected to generate about $1.37 billion of pre-tax earnings on nearly $38 billion of revenues.
The Conference Board said a continued expansion of domestic and international capacity has been a key driver of the improved revenues for the industry’s largest airlines.
Strong demand and growing connecting traffic through its three hubs in Canada are expected to result in another good year in 2018, Air Canada CEO Calin Rovinescu said during a February conference call.
Canadian airports served 139.4 million passengers last year, up 5.4 per cent from 2016 and 37 per cent higher than a decade ago. The loonie’s softness helped boost international air travel in 2017, when a record 5.7 million U.S. residents flew to Canada last year.