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June 06, 2018
IATA forecasts solid profits for airlines despite rising costs
The International Air Transport Association (IATA) announced its expectation for airlines to achieve a collective net profit of $33.8 billion (4.1% net margin) in 2018. This is a solid performance despite rising costs, primarily fuel and labor, but also the upturn in the interest rate cycle. These rising costs are the main driver behind the downward revision from the previous forecast of $38.4 billion in December 2017.
In 2017 airlines earned a record $38.0 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.
In 2018, the return on invested capital is expected to be 8.5% (down from 9% in 2017). This still exceeds the average cost of capital, which has risen to 7.7% on higher bond yields (7.1% in 2017). This is critical for attracting the substantial capital needed by the industry to expand its fleet and services.
Providing some offset to accelerating costs is a strong revenue environment, as demand from passengers and shippers continues to expand well above trend, and pricing has turned positive.
Passenger air travel is forecast to expand by 7.0% in 2018. This is slower than the 8.1% growth recorded for 2017 but still faster than the 20-year average (of 5.5%) for the sixth consecutive year.
Cargo demand has benefitted from the largely unexpected acceleration in the growth of the global economy over the past year. As businesses rushed to respond, they turned to air transport to replenish inventory, producing strong air cargo growth in 2017. That restocking cycle has come to an end.
Cargo demand is expected to grow by 4.0%. This is a major drop from the 9.7% growth experienced in 2017, but it remains in line with the 20-year trend growth rate. Total cargo carried is expected to increase to 63.6 million tonnes (from 61.5 million tonnes in 2017).
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