Airlines head for boosted profits in 2018

Association says good times for industry

Airlines are on course for improved profits next year and are forecast to make an improved US$8.45 (NZ$12.29) a passenger. The International Air Transport Association forecasts global industry net profit to rise to $38.4 billion in 2018, an improvement from the $34.5b expected net profit in 2017.

Another 200 million passengers are expected to travel, although the rate of growth is slowing.

Strong demand, efficiency and reduced interest payments will help airlines improve net profitability next year, despite rising costs. It is expected to be the fourth consecutive year of sustainable profits, with a return on invested capital (9.4 per cent) exceeding the industry’s average cost of capital (7.4 per cent).

The biggest challenge to profitability was rising fuel and labour costs.

Oil prices are expected to average US$60/barrel for Brent crude in 2018 (up 10.7 per cent from $54.2 a barrel this year).

At a media briefing in Geneva, the association said jet fuel prices were expected to rise even more quickly to US$73.8 per barrel (up 12.5 per cent on $65.6 in 2017).

Airlines with low levels of hedging (such as those in the US and China) were likely to feel the impact of this increase more immediately than those with higher average hedging, including those in Europe.

The fuel bill is expected to be 20.5 per cent of total costs in 2018 (up from 18.8 per cent in 2017).

Labour costs have been accelerat- An improvement in net margin to 4.7 per cent (up from 4.6 per cent in 2017) A rise in overall revenues to US$824 billion A rise in passenger numbers to 4.3 billion (up 6.0 per cent on the 4.1 billion passengers in 2017) Slower growth passenger demand (6.0 per cent in 2018 compared to 7.5 per cent this year) Average net profit per departing passenger of $8.90 (up from $8.45 in 2017) ing strongly and are now a larger expense item than fuel (30.9 per cent in 2018).

Overall unit costs were expected to grow by 4.3 per cent in 2018, a significant acceleration on the 1.7 per cent increase in 2017. This will outpace an expected 3.5 per cent increase in unit revenues.

IATA’s director general and chief executive Alexandre de Juniac said these were good times for the industry: “Safety performance is solid. We have a clear strategy that is delivering results on environmental performance.”

Airlines were achieving sustainable levels of profitability.

Air New Zealand has said it expected to improve on the past financial year’s earnings of $527m, although this was based on an average jet fuel price of US$60 a barrel. Four insurers look set to join over 250 locals in a class action lawsuit against the Bay of Plenty Regional Council over flooding in Edgecumbe eight months ago. Those who have signed on to the lawsuit claim the council failed to act on the knowledge that the stop bank could burst, according to NewstalkZB. Barrister David Heaney QC said he’ll meet with insurers to see if they’re interested in taking the matter further. He said they’re getting closer to progressing the lawsuit. Heaney said: “We were hoping to get proceedings underway before Christmas, but it may be that we won’t quite get there. If we don’t make it, it won’t be long after it anyway.”