Continued airline growth, profits seen for 2018

GENEVA: The global air transport industry predicts a continued upturn next year with greater profitability, propelled by positive factors including worldwide economic growth.

“These are good times for the global air transport industry,” IATA director general Alexandre de Juniac told the international media conference on Tuesday at IATA’s Geneva office.

The industry stands to make US$38.4 billion net profit in 2018, an improvement from the $34.5 billion estimated for 2017 that was revised recently upward from $31.4 billion seen in June this year, according to the International Air Transport Association (IATA).

Strong demand, efficiency and reduced interest payments will help airlines improve net profitability in 2018 despite rising costs.

Next year would represent the fourth consecutive year of rising profits for the global airline industry with a return on investment of 9.4%, exceeding the industry’s average cost of capital (7.4%).

The positive outlook is the result of solid airline safety performance; a clear strategy that is delivering results on environmental performance; more people than ever are traveling; demand for air cargo is at its strongest level in over a decade; employment is growing; and more routes are being opened.

“It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses,” Mr de Juniac  noted.

IATA director general Alexandre de Juniac: Airlines sees “good times”. (IATA photo)

He cautioned that the $38.4 billion the entire global airline industry would make next year is still $10 billion shy of the profit that Apple – a single company – announced for 2016.

“Per passenger, airlines on average will make less than $9. And the net margin of 4.7% is hard won,” the French executive said.

The highlights of expected 2018 performance include:

  • A slight decline in the operating margin to 8.1%, down from 8.3% in 2017.
  • An improvement in net margin to 4.7%, up from 4.6% in 2017.
  • A rise in overall revenues to $824 billion, up 9.4% on 2017 revenues of $754 billion.
  • A rise in passenger numbers to 4.3 billion, up 6.0% on the 4.1 billion passengers in 2017.
  • A rise in cargo carried to 62.5 million tonnes, up 4.5% on the 59.9 million tonnes in 2017.
  • Slower growth for both passenger, at 6% compared to 7.5% growth in 2017), cargo at 4.5% in 2018 versus 9.3% in 2017 demand.
  • Average net profit per departing passenger of $8.90, up from $8.45 in 2017.

For most of airlines’ history, its financial performance has not matched the value that it creates, he told journalists.

But airlines, collectively, have been in the black since 2010.

And in the last three years airlines have made an aggregate industry profit in excess of our cost of capital – something that has never happened before.

“For any other business, that’s normal. For the airline industry, it’s an extraordinary achievement. And hopefully, we are on the way to normalising it.”

However, the industry also faces longer-term challenges and many of them are in the hands of governments, he said.

“Aviation is the business of freedom and a catalyst for growth and development.

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,” said Mr de Juniac.

Regional performance

All regions are expected to report improved profitability in 2018 and all regions are expected to see demand growth outpace capacity expansion.

Carriers in North America continue to lead on financial performance, accounting for nearly half of the industry’s total profits.

North America: Airlines in this region are forecast to generate the strongest financial performance with net profits of $16.4 billion in 2018, up from $15.6 billion in 2017.

Asia-Pacific: Airlines in this region are forecast to see profits of $9 billion in 2018, up from $8.3 billion in 2017.

Europe: Europe-based carriers are expected to deliver a net profit of $11.5 billion in 2018, up from $9.8 billion in 2017.

Latin America: Airlines in Latin America are forecast to generate a $900 million net profit in 2018, up from $700 million in 2017.

Middle East: Middle East carriers are forecast to see net profits improve to $600 million in 2018, up from $300 million in 2017.

Africa: African carriers are expected to continue to make small losses of $100 million in 2018 following a collective net loss of $100 million in 2017.

Economic Impact of Aviation

  • Unique city pairs served by airlines grew to over 20,000 in 2017, +1,351 on 2016 and double the 10,000 city pairs served in 1996. This saves time for users and opens new links for tourism, trade and investment.
  • Since 1996 the inflation-adjusted cost of air transport to consumers has halved.
  • International tourists travelling by air are expected to spend more than $750 billion in 2018, a rise of 15% in just over 2 years.
  • The value of goods carried by airlines is expected to exceed $6.2 trillion in 2018, representing 7.4% of world GDP.
  • Direct employment by airlines will exceed 2.7 million worldwide in 2018. On average across the world, IATA forecast that in 2018 each airline employee will generate over $109,000 of gross value added (the firm-level equivalent to GDP, which is considerably higher than the economy-wide average.

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