IATA AGM 2018: Profit expectations lowered for 2018 as fuel costs rise
IATA is currently hosting its annual general meeting in Sydney, Australia

IATA AGM 2018: Profit expectations lowered for 2018 as fuel costs rise

IATA announced its expectation for airlines to achieve a collective net profit of $33.8 billion, at a 4.1 per cent net margin, in 2018.

This is a solid performance despite rising costs, primarily fuel and labour, but also the upturn in the interest rate cycle.

These rising costs are the main driver behind the downward revision from the previous forecast of $38.4 billion in December 2017.

In 2017 airlines earned a record $38.0 billion (revised from the previously estimate of $34.5 billion).

Comparisons to this, however, are severely distorted by special accounting items such as one-off tax credits which boosted 2017 profits.

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Profits at the operating level, though still high by past standards, have been trending slowly downwards since early 2016, as a result of accelerating costs.

“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.

“And the return on invested capital will exceed the cost of capital for a fourth consecutive year.

“At long last, normal profits are becoming normal for airlines.

“This enables airlines to fund growth, expand employment, strengthen balance sheets and reward our investors,” said Alexandre de Juniac, IATA director general.

In 2018, the return on invested capital is expected to be 8.5 per cent (down from nine per cent in 2017).

This still exceeds the average cost of capital, which has risen to 7.7 per cent on higher bond yields (7.1 per cent in 2017).

This is critical for attracting the substantial capital needed by the industry to expand its fleet and services, IATA said.

“Aviation spreads prosperity and enriches the human spirit.

“That truth lays the foundation for a very important message.

“The world is better off when borders are open to people and to trade.

“And our hard work as an industry has primed aviation to be an even stronger catalyst for an ever more inclusive globalisation,” concluded de Juniac.