IATA forecasts global industry net profit to rise to $38.4 billion in 2018

Posted on by Pinkey Rai

The International Air Transport Association (IATA) estimates global industry net profit to rise to $38.4 billion in 2018, an improvement from the $34.5 billion expected in 2017. Strong demand, efficiency, and reduced interest payments will facilitate this rise in net profits–despite rising costs. According to IATA’s latest financial forecast, strong airline profitability is expected to continue in 2018.

According to IATA, there are certain ups and downs in various sector of the performance

  • Slight decline in the operating margin to 8.1% (down from 8.3% in 2017)
  • An improvement in net margin to 4.7% (up from 4.6% in 2017)
  • A rise in overall revenues to $824 billion (+9.4% on 2017 revenues of $754 billion)
  • A rise in passenger numbers to 4.3 billion (+6.0% on the 4.1 billion passengers in 2017)
  • A rise in cargo carried to 62.5 million tons (+4.5% on the 59.9 million tons in 2017)
  • Slower growth for both passenger (+6.0% in 2018, +7.5% in 2017) and cargo (+4.5% in 2018, +9.3% in 2017) demand
  • Average net profit per departing passenger of $8.90 (up from $8.45 in 2017)

2018 is expected to be the fourth consecutive year of sustainable profits with a return on invested capital (9.4%) exceeding the industry’s average cost of capital (7.4%).

“These are good times for the global air transport industry. Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. 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. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labor and infrastructure expenses,” said Alexandre de Juniac, IATA’s Director General and CEO.

Reflecting strong demand, the worldwide air passenger numbers are expected to cross 4 billion this year and grow further to 4.3 billion in 2018. Revenues from the passenger business are expected to grow to $581 billion (+9.2% on $532 billion in 2017). Strong performance of the passenger business is supported by expected robust GDP growth of 3.1% (the strongest since 2010).

Cargo demand is also look forward to grow with the amount to Cargo carried predicted to rise to 62.5 million tonnes–up from 59.9 million tonnes in 2017 (up 8.6% from 2017 revenues of $54.5 billion). This led cargo volumes to grow at twice the pace of the expansion in world trade (4.3%). Cargo yields are expected to improve by 4.0% in 2018 (slower than the 5.0% in 2017).

Regionally, North American airlines should perform best in 2018, and are forecast to generate net profits of $16.4 billion (up from $15.6 billion in 2017).

African airlines will likely post the weakest performance, and are forecast to make a $100 million loss.

Airlines in Asia Pacific are forecast to see profits of $9 billion in 2018 (up from $8.3 billion in 2017). The strong cyclical rise in cargo markets has been a particular support for this region, whose carriers account for 37% of global cargo capacity. Anticipated growth in demand of 7.0% will outpace announced capacity increases of 6.8%.

Europe airlines are expected to deliver a net profit of $11.5 billion in 2018 (up from $9.8 billion in 2017) and announced capacity increases of 5.5% trail the expected 6.0% growth in demand in 2018 supporting a strengthening of the region’s performance.

Commenting on the forecast IATA’s Director General and CEO Alexandre de Juniac said “these are good times for the air transport industry”, but highlighted the many challenges airlines face to remain profitable. More people than ever are traveling,” he said.

“More routes are being opened. Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labor and infrastructure expenses.”

Since 1996 the inflation-adjusted cost of air transport to consumers has halved. International tourists travelling by air are expected to spend more than $750 billion in 2018, a rise of 15% in just over 2 years. The value of goods carried by airlines is expected to exceed $6.2 trillion in 2018, representing 7.4% of world GDP.

Employment by airlines will exceed 2.7 million worldwide in 2018. On average across the world we forecast that in 2018 each airline employee will generate over $109,000 of gross value added (the firm-level equivalent to GDP), which is considerably higher than the economy-wide average.

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