By Khalifa Hemed
Published December 18, 2017
Despite rising costs, 2018 is expected to be the fourth consecutive year of sustainable profits for airlines.
The International Air Transport Association (IATA) forecasts global industry net profit to rise to US$38.4 Billion in 2018, an improvement from the US$34.5 Billion expected net profit in 2017.
“These are good times for the global air transport industry. Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. More people than ever are traveling. The demand for air cargo is at its strongest level in over a decade. 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, labor and infrastructure expenses,” says Alexandre de Juniac, Director-General and Chief Executive Officer of IATA.“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—2.7 million direct jobs and critical support for 3.5% of global economic activity. And the industry is ready to partner with governments to reinforce the foundations for global connectivity that are vital to modern life.”
All regions of the world, IATA says, are expected to report improved profitability and see demand growth outpace capacity expansion, with carriers in North America continuing to lead on financial performance, accounting for nearly half of the industry’s total profits.
Airlines in this region are forecast to generate the strongest financial performance with net profits of US$16.4 Billion in 2018 (up from US$15.6 Billion in 2017). Market conditions are expected to continue to be strong, with announced capacity growth (3.4%) likely to be slightly less than our traffic forecast of 3.5%.
North American airlines have generated more than half of the industry’s profits produced in the past three years, but rising cost pressures have slowed further improvements. Low hedging ratios mean rising fuel prices have hit this region first and labor cost pressures have been an issue, though the expectation is that this pressure will diminish in 2018.
Airlines in Asia-Pacific are forecast to see profits of US$9 Billion in 2018 (up from UB$8.3 billion in 2017). The strong cyclical rise in cargo markets has been a particular support for this region, whose carriers account for 37% of global cargo capacity. Anticipated growth in demand of 7.0%, will outpace announced capacity increases of 6.8%.
Passenger market conditions vary across the region. Domestic markets have strengthened in China, India and Japan. New low cost market entrants in the ASEAN (Association of Southeast Asian Nations) region are intensifying competition and contributing to keeping profitability low. But there has been a pause in competitive pressures from the “super connectors” on long-haul routes as they face various challenges in their home markets.
Airlines in Europe are expected to deliver a net profit of US$11.5 Billion in 2018 (up from US$9.8 Billion in 2017). Announced capacity increases of 5.5% trail the expected 6.0% growth in demand in 2018 supporting a strengthening of the region’s performance.
European airlines are benefiting from a strong economic recovery in home markets, including Russia, a rebound from the terrorism events of 2016, and some consolidation following the failure of several regional airlines. The results of these developments are evident in the continent achieving the highest average passenger load factor in 2017 to date—84.3%. Strong transatlantic demand is also supporting this performance, although new market entry is intensifying already stiff competition. And an early resolution to Brexit uncertainties is needed for airlines to plan and market their flying programmes.
Airlines in Latin America are forecast to generate a US$900 Million net profit in 2018 (up from US$700 Million in 2017). Passenger demand is expected to grow by 8.0% in 2018, outpacing announced passenger capacity growth of 7.5%.
Middle East carriers are forecast to see net profits improve to US$600 Million in 2018 (up from US$300 Million in 2017). Demand in 2018 is expected to grow by 7.0%, outpacing announced capacity expansion of 4.9% (the slowest growth since 2002).The region’s carriers face challenges to their business models, and from low oil revenues, regional conflict, crowded air space, the impact of travel restrictions to the US, and competition.
African carriers are expected to continue to make small losses of US$100 Million in 2018 following a collective net loss of US$100 Million in 2017. Stronger forecast economic growth in the region is expected to support demand growth of 8.0% in 2018, slightly outpacing the announced capacity expansion of 7.5%.
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