The rising costs within the aviation industry have not dampened an expected year of solid performance, despite triggering a downward revision in forecasts and a slow downward trend in profits at the operating level.
Despite accelerating costs, particularly fuel and labour costs, and an upturn in the interest rate cycle, airlines are expected to achieve an aggregate net profit of $33.8-billion this year, down from a December forecast of $38.4-billion.
“Solid profitability is holding up in 2018, despite rising costs. 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,” said International Air Transport Association (Iata) director-general and CEO Alexandre de Juniac.
“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,” he added.
The return on invested capital is expected to be 8.5% this year, a contraction on the 9% reported in 2017; however, this still exceeds the average cost of capital, which has risen to 7.7% on higher bond yields.
“This is critical for attracting the substantial capital needed by the industry to expand its fleet and services.”
However, profits, although still high by past standards, have been trending slowly downwards since early 2016.
“In 2017, airlines earned a record $38-billion, revised from the previously estimate of $34.5-billion. Comparisons to this, however, are severely distorted by special accounting items such as one-off tax credits which boosted 2017 profits,” De Juniac said.
He cited the emergence of inflation pressures, in addition to the pressures of rising fuel and labour costs.
“We expect the full-year average cost of Brent crude to be $70/bl. This is up from $54.90/bl in 2017 and our previous 2018 expectation of $60/bl. Jet fuel prices are expected to rise [by 25.9%] to $84/bl. Fuel costs will account for 24.2% of total operating costs,” De Juniac noted.
Overall unit costs are forecast to rise 5.2% this year, after a 1.2% increase in 2017.
However, Iata pointed out that a strong revenue environment and strong demand are offsetting some of the accelerating costs.
Revenues are expected to increase by 10.7% to $834-billion and passenger air travel is forecast to expand by 7% this year.
Capacity is expected to remain steady at 6.7%, while the passenger load factor is expected to be 81.7%.
Total passenger numbers are expected to rise from 4.1-billion in 2017 to 4.36-billion this year. Passenger yields are expected to grow by 3.2% this year after a 0.8% decline in 2017.
Cargo demand is expected to grow by 4%, with cargo yields improving 5.1% this year.