Global airlines face a cut in collective net profits to $33.8 billion this year against a record $38 billion in 2017.
The forecast was described by Iata as a “solid performance” against a backdrop of rising costs, primarily fuel and labour, but also the upturn in the interest rate cycle.
Increasing costs are the main driver behind the downward revision from the previous forecast of $38.4 billion in December.
But Iata warned: “Growing uncertainty in the direction by which global affairs will evolve could present risks to the industry’s outlook.
“These include the advancement of political forces pushing a protectionist agenda, uncertainty following the US withdrawal from the Iran nuclear deal, lack of clarity on the impact of Brexit, numerous ongoing trade discussions and continuing geopolitical conflicts.”
Iata also cautioned that the gains of airline deregulation were being put at risk due to a “creeping trend of re-regulation”.
Regulatory “over-reach” now includes attempts to prescriptively regulate passenger compensation, seat assignments, the ticket options that can be offered to consumers and prices charged for various ancillary services, said director general and CEO Alexandre de Juniac.
“Regulations must add value. In assessing that, regulators must recognise the power of competition and social media to safeguard consumer interests.
“Governments should not distort market effectiveness with regulations that second-guess what consumers really want,” he said.
Total passenger numbers are expected to rise by 6.5% this year to 4.36 billion from 4.1 billion in 2017.
Profits at the operating level, though still high by past standards, have been trending slowly downwards since early 2016, as a result of accelerating costs, according to the aviation trade body.
Iata expects the full-year average cost of Brent crude to be $70 a barrel, up from $54.9 a barrel in 2017 and previous expectations of $60 a barrel for 2018.
Jet fuel prices are expected to rise by more than a quarter to $84 a barrel while overall unit costs are forecast to rise 5.2% this year, after a 1.2% increase in 2017 – “a significant acceleration”.
Strong demand from passengers and shippers continues to expand well above trend, providing some offset to accelerating costs, according to Iata.
This will see a 10.7% rise in overall revenues to $834 billion from $754 billion in 2017.
Passenger air travel is forecast to expand by 7% in 2018, slower than the 8.1% growth recorded last year but still faster than the 20-year average (of 5.5%) for the sixth consecutive year.
Demand is getting a boost from stronger economic growth and the stimulus from new city-pair direct services.
Capacity is expected to grow by 6.7%, the same pace as in 2017.
Iata director general and CEO Alexandre de Juniac, speaking at the opening of Iata’s 74th annual meeting in Sydney, said:
“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.
“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: “Aviation spreads prosperity and enriches the human spirit. That truth lays the foundation for a very important message. The world is better off when borders are open to people and to trade. And our hard work as an industry has primed aviation to be an even stronger catalyst for an ever more inclusive globalisation.
“The 4.1 billion passengers who boarded planes in 2017 demonstrated the human desire to explore, connect, learn and collaborate across great distances. And the over 60 million tonnes of cargo delivered by air accounted for a third of the value of goods traded globally.
“Every day, goods, people, investment and ideas are connected using aviation’s network. That directly supports 63 million jobs and improves the quality of life for all.”
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