APEX Insight: IATA anticipates profits of $38.4 billion across the airline industry in 2018, up from $34.5 billion in 2017. But speaking at IATA’s Media Day in Geneva, Alexandre de Juniac, the association’s director general and CEO, said most passengers are unwilling to pay more for comfort on board.
More people are traveling more frequently, while paying less for that pleasure: This is the main takeaway from IATA’s latest Global Economic Outlook forecast, released today in Geneva. Travelers are also flying in ever tighter spaces, with no signs of this trend abating, and IATA director general and CEO Alexandre de Juniac believes passengers might not really want that to change.
The industry trade group highlights a “halving in the inflation-adjusted cost of air transport” over the past 20 years, even as new routes proliferate and new airlines expand. Reduced passenger costs come as airlines realize record profits. IATA anticipates $38.4 billion in profit across the industry for 2018, up from $34.5 billion in 2017. Profit per departing passenger will be $8.90 in 2018, up from $8.45 in 2017.
As airline profits increase, concerns about passenger comfort continue to smolder. Densification is the name of the game for carriers, with more seats on board – and those seats are being filled more than ever. IATA expects a record high load factor of 81.4% in 2018.
“People don’t want to pay … I’m surprised. I’m not in favor of that.” – Alexandre de Juniac, IATA
With more seats and more passengers on board, questions around passenger comfort and safety become more frequent and pointed. De Juniac was surprisingly blunt when addressing this topic, declining to endorse new regulations around minimum seat pitch or width, even as it pertains to safety. Instead, de Juniac deferred to passengers and their unwillingness to pay for comfort on board. “You cannot ask the airlines to pay the lowest price and also to provide the best product and the larger space,” he said. “What you must keep in mind is that people don’t want to pay … I’m surprised. I’m not in favor of that. But that’s the way it is.”
Some passengers are willing to pay for a better experience. Ancillary revenue numbers continue to increase, driven primarily by checked baggage and fare change fees. Premium legroom products are also generating significant revenue – Delta Air Lines realized an estimated $300+ million for its Comfort+ seating product in 2016, according to the 2017 Ideaworks Ancillary Revenue report.
IATA expects airline costs to rise in the coming year, putting further pressure on profit margins, just as airlines, and their investors, are becoming comfortable with profit generation. American Airlines CEO Doug Parker recently suggested that his airline would never lose money again. Stuck in the middle are passengers, with less space than ever on board and a general unwillingness to pay for more.