Global airlines forecast record profit in 2018 as fares likely to rise
GENEVA (Reuters) – Improving economies and robust travel demand will return global airlines to record profit in 2018, with fares also set to rise, the International Air Transport Association (IATA) said on Tuesday.
Overall profits are expected to rise 11% to $38.4 billion in 2018, and the outlook is encouraging, the IATA said as it raised its 2017 forecast to $34.5b., up from an earlier $31.4b. estimate but still lower than 2016.
Of the $38.4b., $27.9b. will come from North American and European airlines, it said.
“We are eight years into this air-travel cycle, but we see no reason at present to expect that cyclical pattern to repeat itself,” IATA chief economist Brian Pearce said, referring to a trend that would usually indicate a major downturn was due.
After declining for six years in a row, passenger yields, a measure of ticket pricing, are also expected to rise 3% next year, after falling 1.5% in 2017.
But not all the forecasts are so positive, with passenger demand measured in revenue passenger kilometers set to rise only 6%, slightly less than 2017’s 7.5% increase.
And cargo demand, also a bright spot in 2017, with demand up 9.3% after a tough few years, is expected to moderate to 4.5% in 2018.
The IATA said the forecast increase in passenger fares was in line with expected inflation.
EUROPEAN UPGRADE
Rising ticket revenues have helped major European airlines report better-than-expected profits this year. The IATA said it was upgrading its net-profit forecast for Europe to $9.8b. this year, from a previous estimate of $8.6b., and profits should rise further to $11.5b. next year.
While tough competition has seen the demise of some carriers, improving economies and robust demand rather than consolidation are key to rising profit in Europe, Pearce said.
In good news for airline investors, the industry’s return on capital is expected to exceed its cost of capital for a fourth year in a row next year.
With global profitability now on a more sustainable footing, the IATA said airlines’ main focus was on keeping costs under control, with rising fuel prices and labor costs set to weigh.
The IATA predicts unit costs will rise 4.3% in 2018, after 1.7% in 2017, and an average jet-fuel price of $73.8 per barrel next year, up 12.5%.
“The industry is reacting to that cost pressure,” Pearce said. “We know from the announced schedules that we are likely to see some slowdown in the increases in capacity in 2018.”
However, the IATA said it was not concerned there was a pilot shortage after high-profile cancellations at Ryanair and American Airlines due to rostering issues and after some US airlines awarded high pay increases to pilots this year.
Pearce said air-travel demand had grown faster than expected, outpacing the supply of new pilots.
“We expect to see the training sector respond and produce more pilots over time,” he said.