Airlines slash profit forecast over rising costs

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BA plane leaves Geneva airport Image copyright Reuters

Profits at the world’s major airlines will be hit this year by rising fuel and labour costs, the industry’s trade body has said.

The International Air Transport Association has cut its profit forecast for 2018 by 12% to $33.8bn (£25.3bn).

IATA, which is holding its annual meeting, said rising interest rates and trade tensions would also hit profits.

Airlines earned a record $38bn in 2017, although this was distorted by several one-off changes, such as tax credits.

Despite the reduced profit forecast, IATA’s director general, Alexandre de Juniac, said in statement: “Solid profitability is holding up in 2018, despite rising costs. The industry’s financial foundations are strong with a nine-year run in the black that began in 2010.”

Airlines’ fuel costs this year are forecast to rise by nearly 30%, with the oil price expected to average $70 a barrel, up from $54.90 a barrel in 2017. IATA, which represents 280 airlines that make up about 83% of global traffic, had previously forecast an average price of $60 a barrel.

Trade barriers ‘bad news’

Mr de Juniac warned that airlines could be hit by the effects of “political forces pushing a protectionist agenda”, although he did not mention any countries.

“We haven’t faced any significant decline in numbers of passengers or cargo related to trade wars or protectionist barriers up to now, but if it continues it will happen,” he told a news conference at the meeting, which is being held in Sydney.

The US and China have threatened tit-for-tat tariffs on goods worth up to $150bn each, while some European countries have expressed anger over new US tariffs on steel and aluminium.

“Generally, we think… that all these barriers to trade are bad news from an industry standpoint,” Mr de Juniac said.

In its forecast of profitability by region, IATA said that North American airlines were expected to record a net profit of $15bn, while European and Asia-Pacific carriers were tipped to report profits of $8.6bn and $10.1bn representatively.

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