Airline profits set to return to growth on boost from lower oil

London

AIRLINE earnings are set to return to growth in 2019 after stuttering this year, boosted by lower jet-fuel costs and expanding economies, the International Air Transport Association said.

Industry-wide net income should jump 10 per cent to US$35.5 billion, with North America accounting for almost half of the total and Europe held back by fuel-hedging positions that will delay gains, according to the trade group. All regions apart from Africa should show positive figures.

The upbeat outlook assumes an average oil price of US$65 a barrel, versus US$73 this year, as well as global economic growth of 3.1 per cent. That should produce an average net profit for airlines of US$7.75 per departing passenger, up 30 cents, though Iata cautioned that trade wars and Brexit could curb gains.

"We had expected that rising costs would weaken profitability in 2019, but the sharp fall in oil prices and solid GDP growth projections have provided a buffer," Alexandre de Juniac, the organisation's chief executive officer, said at a briefing Wednesday. "So we are cautiously optimistic that the run of solid value creation for investors will continue."

The full benefit of the slide in jet-fuel prices won't be felt immediately in some regions because of "heavy levels of hedging," according to Mr De Juniac, who was previously CEO of Air France-KLM Group.

Iata revised its profit estimate for 2018 to US$32.3 billion, US$1.5 billion lower than a forecast in June and more than US$6 billion below the initial outlook a year ago. The new figure would represent a 14 per cent decline compared with 2017's all-time high of US$37.7 billion.

Iata also said industry revenues should jump 8 per cent to US$885 billion in 2019 as passenger numbers increase by about 250 million to 4.59 billion. Cargo volumes will advance 3.5 per cent to 65.9 million tonnes.

North American carriers will post a net profit of US$16.6 billion or US$16.77 per passenger, more than twice the global average, Iata says, aided by consolidation that's removed excess capacity and boosted fares. Low levels of fuel hedging will also mean a quick impact from the oil price.

Europe's net earnings will fall slightly to US$7.4 billion as "intense competition" weighs on yields and air traffic control delays require carriers to provide refunds that totalled US$2 billion in 2018. Higher levels of hedging will delay gains from falling fuel prices.

Asia-Pacific carriers should see profit increase to US$10.4 billion, aided by strong regional economic growth and limited fuel hedging.

The Mideast will see earnings increase by one-third, but only to US$800 million, Iata predicts, as the oil price hurts local travel demand, Persian Gulf hubs face increased competition and carriers such as Etihad Airways struggle with their business models.

Latin America will produce the biggest percentage gain for a profit of US$700 million, but continues to struggle with the aftermath of the Brazilian recession, difficulties in Argentina and the impact of currency changes on dollar-denominated purchases such as fuel and planes.

African carriers may cut their collective losses by a quarter to US$300 million, but occupancy levels mostly remain too low to generate a profit. BLOOMBERG