The world’s airlines will carry a record number of passengers and earn all-time high collective revenues in 2018, IATA economists forecast.
Briefing journalists Dec. 5 from IATA’s Geneva headquarters, chief economist Brian Pearce said it was expected that the global airline industry’s net profit in 2018 will increase to $38.4 billion from the $34.5 billion expected for 2017. Collective revenues will be $824 billion in 2018, a 9.4% increase over 2017’s $754 billion. Net margin is expected to be essentially flat, at 4.7% in 2018 versus 4.6% in 2018. The number of passengers carried will rise 6% from 4.1 billion in 2017 to 4.3 billion, while cargo tonnage will grow 4.5% from 59.9 million tonnes to 62.5 million tonnes.
As has been the trend for the past few years, there will be significant differences in airline profitability from region to region, with North America maintaining its substantial profit lead. North American carriers are forecast to post a $16.4 billion net profit in 2018 compared with 2017’s forecast $15.6 billion.
European carriers, however, are closing the gap. They are expected to post an $11.5 billion profit in 2018 versus $9.8 billion this year. Asia-Pacific airlines’ profit is forecast to be $9 billion versus $8.3 billion.
There is then a large difference in the fortunes of airlines in other world regions. Latin American and Middle East carriers are expected to eke out small profits: Latin American airlines should post a $0.9 billion profit in 2018 versus $0.7 billion this year, while Middle East airlines are forecast to post a $0.6 billion profit in 2018 versus $0.3 billion.
African carriers, meanwhile, are expected to remain in the red with a collective loss of $0.1 billion, the same as 2017. Regional conflicts and the impact of low commodity prices continue to hurt Africa’s airline industry, IATA said. And while Africa’s airliner accident rate is improving, its five-year accident rate for 2012-2016 is the world’s highest at 8.33 accidents per million sectors. Two of the four turboprop hull losses in the first half of 2017 were African aircraft—A Doren Air Congo LET L-410 and a South Sudan Supreme Airlines Antonov AN-26.
The biggest challenge to airline profitability, IATA said, will be rising costs. Airlines are expected to spend a total of $156 billion on oil in 2018, based on an average price of $73.8 per barrel and a $60 per barrel Brent crude oil price, a 10.7% increase over 2017. That means fuel will account for 19.6% of airline average operating costs.
But an even bigger concern are rising labor costs. They have been “accelerating strongly,” IATA said, and are likely to account for 30.9% of average operating costs.
Another industry trend that continues, Pearce said, is the growth in new unique city-pairs. A record number of 20,000 city-pair connections were operated in 2017, 1,351 more than 2016, and a doubling of service since 1996 when there were less than 10,000 city-pair connections. While the strongest growth in new city pairs is in China, Europe is also seeing robust growth, Pearce noted.