The International Air Transport Association (IATA) cut its profit target for the global aviation market this year, predicting lower returns than six months ago as rising fuel prices and labor costs eat into the industry.
Net income for this year is likely to total US$33.8 billion, 12 percent lower than a December last year forecast of US$38.4 billion, the industry’s main trade group said in a statement in Sydney.
The new forecast compares with an all-time high of US$38 billion airlines made last year, which was boosted by special accounting, such as one-off tax credits, the IATA said.
“At long last, normal profits are becoming normal for airlines,” IATA director-general and chief executive officer Alexandre de Juniac said in the statement referring to continued profits for the ninth straight year. “This enables airlines to fund growth, expand employment, strengthen balance sheets and reward our investors.”
North American airlines, with a net profit of US$15 billion, would contribute the most to the industry’s earnings, apart from posting the highest margins and return on capital, the IATA said.
Apart from Africa, all other regions would remain profitable.
Carriers in the Asia-Pacific region, the fastest-growing region in terms of passengers, would earn US$8.2 billion, just behind European airlines’ US$8.6 billion.
Upturn in interest rates is also another factor affecting profit, the airline group said.
Growing uncertainty in global affairs, including a protectionist agenda by some political forces, US withdrawal from the Iran nuclear deal and lack of clarity on the effects of Brexit, are risks to the industry’s outlook, the IATA said.
While fuel costs top the list of expenses for most airlines, it is wages for US carriers.
Brent crude prices have risen 55 percent in the past year and touched a three-and-a-half-year high last month.
It is inevitable that airlines would have to pass some of the fuel burden onto passengers, de Juniac said in Sydney on Thursday last week.
The IATA represents about 280 carriers worldwide, or 83 percent of total air traffic.
American Airlines Group Inc said it is managing to soak up rising fuel costs for the moment, but it might have to raise prices if those levels become “the new normal.”
Qantas Airways Ltd said its domestic business “can continue to digest” higher fuel prices.
IndiGo, India’s biggest airline, last week said it is reintroducing a fuel surcharge citing the rise in oil prices.
Inflationary pressures are starting to emerge in the late stage of the economic cycle, and airlines are facing significant pressures from rising fuel and labor costs in particular, the IATA said.
Full-year average cost of Brent is seen at US$70 a barrel, while jet fuel prices might rise to US$84 a barrel, it added.
Passenger air travel is forecast to expand 7 percent this year, compared with 8.1 percent in last year, while cargo growth is to slow to 4 percent from 9.7 percent last year as a restocking cycle by business on the back of a strong economy comes to an end, the IATA said.
This year’s average return airfare, before surcharges and tax, is expected to be US$380, which is 59 percent below 1998 levels after adjusting for inflation, it said.
Average air freight rates this year are expected to be US$1.80 per kilogram, down 63 percent from 1998 levels, the IATA aded.
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