IATA economist Brian Pearce outlines what's in store. Source: IATA Communications
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 are 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 accelerating 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.
A Cathay Pacific A350XWB lands at Auckland Airport. Photo / Grant Bradley
Key trends next year include:
• A slight decline in the operating margin to 8.1 per cent (down from 8.3 per cent in 2017) • 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)
IATA's director general and chief executive Alexandre de Juniac said these were good times for the air transport industry.
''Safety performance is solid. We have a clear strategy that is delivering results on environmental performance.
Airlines were achieving sustainable levels of profitability.
''It's still, however, a tough business, and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses," he said.
The cargo business continued to benefit from a strong cyclical upturn in volumes, with some recovery in yields. Volumes are expected to grow by 4.5 per cent in 2018 (down from the 9.3 per cent growth of 2017).
The boost to cargo volumes this year was a result of companies needing to restock inventories quickly to meet unexpectedly strong demand. This led cargo volumes to grow at twice the pace of the expansion in world trade of 4.3 per cent.
All regions are expected to report improved profitability next year.
Airlines in Asia Pacific are forecast to report profits of US$9 billion in 2018 (up from $8.3 billion this year). The strong cyclical rise in cargo markets has been a particular support for this region, whose carriers account for 37 per cent of global cargo capacity.
Air New Zealand has said it expects to improve on the past financial year's earnings of $527 million although this was based on an average jet fuel price of US$60 a barrel.
