Relative to so many years, the past 12-month period has been another good one for the global air transport industry. So why does it not feel quite as good? Global airline proftability for 2018 is expected to be $33.8 billion, according to IATA’s
June forecast, which also believes airlines will generate
more revenue in 2018—$834 billion, up 10.7% from
$754 billion in 2017—than in any year in the industry’s history.
Air cargo is another “good news” story after years in
the doldrums. IATA projects global freight-tonne kilometers will grow 4% year-over-year (YOY) in 2018,
and that’s on top of 2017’s robust 9.7% growth.
But the airlines’ $33.8 billion collective proft, if
achieved, will be 12% down from the $38.4 billion IATA
predicted in December 2017. It will also mean that the
industry’s net proft will be less than its 2017 proft of
$34.5 billion. Te main reason for the downgrade is that
fuel costs are much higher than initially expected, with
Brent Crude oil prices averaging more than $76 per barrel in early June. Tose rising fuel costs were clearly taking efect as airlines began reporting their 2018 second-quarter results and giving their full-year outlooks.
A continuing strong demand for air travel is pump-
ing airline revenues, enabling airlines to wrap higher
fuel costs into fares. But the oil hike has been steeper
and faster than many expected, so there is a gap as fares
catch up—and in highly competitive markets such as
Asia, the lag may be longer.
Nonetheless, a restructured airline industry is in better
shape than ever to withstand fuel price spikes. Te trend
for large growth in new unique city-pairs demonstrates the
continuing demand for air travel and airline confdence
in opening new routes. 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. IATA expects
city-pair connections to set a new record in 2018 and to
exceed 21,000. While the strongest growth in new city
pairs is in China, Europe is also seeing robust growth.
Another indicator of market confdence was demonstrated at the Farnborough Air Show in mid-July,
where Airbus and Boeing announced orders and commitments for a total of some 900 airliners (see page 10).
But tugging in the opposite direction of this bullishness are concerns and uncertainty about what might
exacerbate the oil price situation. Labor costs have been
accelerating strongly and are likely to account for some
30% of average operating costs. In Europe and North
America, unions are pushing back. Growing global
trade tensions, particularly between the US and traditional allies such as Canada and the European Union,
threaten to slow, if not stife growth. And a US-China
trade spat escalated in July.
“Tere is a lot of uncertainty at the moment with
tarif wars and fuel prices rising, so business confdence
has taken a knock,” IATA chief economist Brian Pearce
noted in June at the IATA AGM. “Tere has been a
trade problem really for the last 10 years. We had been
seeing a creeping protectionism of the soft kind, and
The industry is growing and doing well, but the business environment
feels slightly cooler. BY KAREN WALKER