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Iata cuts 2018 global airline profit forecast on escalating costs

[SYDNEY] The International Air Transport Association (Iata) expects airlines to make US$33.8 billion this year, cutting its forecast from US$38.4 billion previously, owing to headwinds from escalating costs.

The global airline association pointed to higher fuel and labour costs as well as the upturn in the interest rate cycle weighing down the industry’s performance this year. Against an annual revenue of US$834 billion, this translates to an average profit per passenger of US$7.76, or a slim profit margin of 4.1 per cent.

In 2017, airlines earned a record US$38 billion, although this was partly boosted by one-off items such as tax credits.

While North American carriers are leading the pack this year with an expected net profit of US$15 billion, Asia-Pacific carriers are in third place with likely profits of US$8.2 billion, just behind Europe (US$8.6 billion).

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In tandem with climbing oil prices, the average price of jet fuel is expected to hit US$84 per barrel for 2018 as a whole, surging nearly 26 per cent year-on-year. Fuel, one of the biggest components of operating costs for airlines, will account for some 24 per cent of total costs.

Cushioning some of the impact of rising costs is buoyant demand. Passenger demand is expected to grow by 7 per cent this year on the back of stronger economic growth, while yields will trend into positive territory for the first time since 2011 with growth of 3.2 per cent.

Meanwhile, cargo demand will grow by 4 per cent, moderating from the 9.7 per cent growth clocked up last year as the restocking cycle for businesses comes to an end. Cargo yields will grow by 5.1 per cent, versus 8.1 per cent previously.

“At long last, normal profits are becoming normal,” said Iata chief Alexandre de Juniac, speaking to member airlines at the 74th Iata annual general meeting in Sydney. But he went on to add: “It is a challenging industry in which to operate. High taxes, costly and ill-conceived regulation, infrastructure capacity constraints, market shifts and the demands of labour are the ‘normal’ repertoire."

He also flagged risks to the industry’s outlook, such as political uncertainties from US's withdrawal from the Iran nuclear deal, the risk of a trade war and ongoing geopolitical conflicts.