British Airways aircraft. A strong performance from European airlines has lifted global profits. Simon Dawson / Bloomberg
Skift Take: Despite the multiple bankruptcies, European aviation has actually had a pretty good year. And with some of the weaker carriers exiting the market, there are more opportunities for the like of Lufthansa and IAG to exploit their dominance.
— Patrick Whyte
Global airline earnings this year will top previous forecasts and surge to a record in 2018, spurred by higher fares and burgeoning cargo demand, according to the industry’s main trade group.
Net income for 2017 is likely to total $34.5 billion, $3.1 billion higher than forecast in June, the International Air Transport Association said Tuesday in a statement. The figure should advance by a further 11 percent next year.
All major regions contributed to the better-than-expected forecast, led by Europe and the U.S. More cargo is being sent by air as people increasingly buy goods over the Internet — giving a particular lift to Asian exports. While rising passenger traffic will increase fares, airlines will be challenged by rising costs for fuel and labor. One emerging concern is the effect of U.S. President Donald Trump’s travel restrictions on Middle East carriers.
“These are good times for the global air transport industry,” IATA Chief Executive Officer Alexandre de Juniac said in the release. “More people than ever are traveling. The demand for air cargo is at its strongest level in over a decade. Employment is growing. More routes are being opened. Airlines are achieving sustainable levels of profitability.”
Seat-occupancy will reach 81.4 percent in 2018, while yields, a measure of fares, should advance 3 percent, according to IATA. The price of jet fuel is forecast to jump almost 13 percent, weighing on earnings at carriers with limited hedging, such as those in the U.S. and China.
The upgraded estimate for this year is still slightly below 2016’s $34.8 billion earnings figure, but the 2018 prediction to $38.4 billion would represent a new industry high as passenger numbers top 4.3 billion. Profit per passenger is forecast to reach $8.90, a gain of 45 cents.
While North America will remain by far the biggest contributor to profit next year, according to IATA, its share of the total will fall below half. Europe will provide the biggest increase in net income at a gain of $1.7 billion as travel continues to rebound from a spate of terrorist attacks and trans-Atlantic demand remains strong. De Juniac has said insolvency filings at carriers including Air Berlin Plc and Alitalia SpA reflect over-capacity rather than market weakness.
Earnings will also increase in the Asia-Pacific region and Latin America. The Middle East should see significant gains, with demand far outstripping capacity growth that’s set to be the lowest since 2002 as companies such as Qatar Airways respond to sluggish oil-industry demand and the impact of travel restrictions.
Africa is set to remain the only unprofitable region, IATA predicts, with airlines suffering a collective $100 million loss in 2018, similar to this year.
The air-freight market is buoyant after years in the doldrums, IATA said, with volumes likely to reach 62.5 million metric tons next year. While momentum is easing after a period of restocking, the development of e-commerce should mean that growth rates remain ahead of the pace of expansion in world trade.
©2017 Bloomberg L.P.
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