IATA: African Airline May Incur $100m Loss in 2018
The International Air Transport Association (IATA) forecasts global industry net profit to rise to $38.4 billion in 2018, an improvement from the $34.5 billion expected net profit in 2017, but posited that despite the overall progress, Africa’s airlines would incur a loss of $100 million next year.
This is contained in IATA 2018 forecast made available by the global body presented by IATA’s Director-General and CEO, Alexandre de Juniac, in Geneva, Switzerland. The forecast stated that Africa’s airlines are expected to continue making a combined loss of $100 million in 2018, i.e. a repeat of this year’s performance. However, stronger forecast economic growth in the region (excluding South Africa, which remains weak) is expected to support demand growth of 8.0 percent in 2018, slightly outpacing the announced capacity expansion of 7.5 percent.
The forecast also noted that the slow pace of wider economic improvement in Africa is hampering the financial performance of the continent’s airlines. Nigeria is only just out of recession and growth in South Africa remains extremely weak. As a result, although traffic is growing, the passenger load factors (i.e. the measure of utilised capacity) are just over 70 percent. This is more than 10 percent lower than the global industry average.
The combination of low utilisation and high fixed costs make it difficult for airlines to make a profit. Stronger economic growth will help in 2018, but Africa’s governments need to make a concerted effort to free up intraAfrican access to their markets as the increased connectivity will stimulate wider economic growth. Overall highlights of expected 2018 performance include a slight decline in the operating margin to 8.1 per cent (down from 8.3 percent in 2017); an improvement in net margin to 4.7 percent (up from 4.6 percent in 2017); a rise in overall revenues to $824 billion (+9.4 percent on 2017 revenues of $754 billion) and a rise in passenger numbers to 4.3 billion (+6.0 percent on the 4.1 billion passengers in 2017).
IATA also projected a rise in cargo carried to 62.5 million tonnes (+4.5 percent on the 59.9 million tonnes in 2017), slower growth for both passenger (+6.0 percent in 2018, +7.5 percent in 2017) and cargo (+4.5 percent in 2018, +9.3 percent in 2017) demand and average net profit per departing passenger of $8.90 (up from $8.45 in 2017)
The global body noted that strong demand, efficiency and reduced interest payments will help airlines improve net profitability in 2018 despite rising costs. 2018 is expected to be the fourth consecutive year of sustainable profits with a return on invested capital (9.4 percent) exceeding the industry’s average cost of capital (7.4 percent).