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Rising fuel and labour costs knock airline profits

June 5, 2018 Headline News No Comments Email Email

Rising fuel and labour costs have led the International Air Transport Association (IATA) to downgrade its profit forecast for global airline members in 2018.

IATA, which is currently holding its annual general meeting in Sydney, now forecasts a collective net profit of USD 33.8 billion (4.1% net margin) this year.

As well as rising costs, primarily fuel and labour, an upturn in the interest rate cycle had also contributed to the downward revision from the previous profit forecast of USD 38.4 billion in December 2017, IATA said.

In 2017, airlines earned a record USD 38 billion (revised from the previous estimate of USD 34.5 billion).

IATA said comparisons to this, however, were severely distorted by special accounting items such as one-off tax credits, which boosted 2017 profits. Profits at the operating level, though still high by past standards, had been trending slowly downwards since early 2016, as a result of accelerating costs.

“Solid profitability is holding up in 2018, despite rising costs,” IATA’s director general and chief executive, Alexandre de Juniac, assured his audience.

“The industry’s financial foundations are strong with a nine-year run in the black that began in 2010. And the return on invested capital will exceed the cost of capital for a fourth consecutive year.

“At long last, normal profits are becoming normal for airlines. This enables airlines to fund growth, expand employment, strengthen balance sheets and reward our investors.”

In 2018, the return on invested capital is expected to be 8.5% (down from 9% in 2017). This still exceeds the average cost of capital, which has risen to 7.7% on higher bond yields (7.1% in 2017). This is critical for attracting the substantial capital needed by the industry to expand its fleet and services.

Edited by Peter Needham

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