APEX Insight: The International Air Transport Association (IATA) has downgraded its airline profit forecast for this year to US$33.8 billion (from $38.4 billion forecast late last year) on the back of rising costs, primarily fuel and labor, and an upturn in the interest rate cycle.
The airline industry is holding up well and its financial foundations are stronger than ever, despite IATA’s downward profit forecast, Alexandre de Juniac, IATA’s director general and CEO, said at the association’s Annual General Meeting today in Sydney. He pointed out that, while half of the industry’s profits are generated in North America, “the goal is for the entire industry to operate in solid financial health.”
Last year, airlines earned a record $38 billion, although that profit was distorted by special accounting items including one-off tax credits, de Juniac explained. Overall revenues for this year are expected to rise to $834 billion – up 10.7% from $754 billion in 2017.
The future looks bright and the potential is strong,” – Rupert Hogg, Cathay Pacific CEO
Airline CEOs shared de Juniac’s optimism. “The industry is in pretty good shape,” concurred Air New Zealand CEO Christopher Luxon. “The future looks bright and the potential is strong,” agreed Cathay Pacific CEO Rupert Hogg. Air Canada CEO Calin Rovinescu added that the industry is “significantly stronger” than in previous years, following consolidation and restructuring, and although there could be further airline casualties, the industry should be able to weather labor and fuel cost rises.
Industry profits have been hard won through major changes to the industry structure and its operations, said de Juniac. He added, however, that the industry only has a thin buffer against future shocks, with airlines set to make an average profit per passenger of $7.76 – a 4.1% net margin – with rising costs putting this under pressure.
Traffic is forecast to rise 7.0% in 2018 – slower than last year’s 8.1% growth, but still more than the 20-year average of 5.5% – while capacity is expected to increase by 6.7% (the same as a year ago). Total passenger numbers are expected to increase to 4.36 billion – up 6.5% from 2017’s 4.1 billion.
The industry faces three key challenges, according to de Juniac, who pointed to creeping re-regulation; the need to maintain the integrity of global standards; and finding sufficient capacity to affordably accommodate growth.
On creeping re-regulation he pointed to the US Senate proposal, for example, that is seeking to regulate what airlines can charge for re-booking, cancelation, checked baggage and seat selection, which he describes as “a stunning reversal of US deregulation.”
In the area of global standards, the IATA board has mandated the association to move ahead quickly to meet consumer expectations for real-time baggage tracking, with IATA standard RFID inlays to be fitted to all baggage tags in an industry roll out planned from 2020. The association is also looking at global standards for its One iD project which proposes face, iris or fingerprint recognition to allow passengers to seamlessly move from curb to gate without having to continuously prove their identity.