Airlines set for record profit in 2018, fare rise
forecast
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[December 05, 2017]
By Victoria Bryan
GENEVA (Reuters) - Improving economies and
robust travel demand will return global airlines to record profit in
2018, with fares also set to rise, the International Air Transport
Association (IATA) said.
Overall profits are expected to rise 11 percent to $38.4 billion in
2018, and the outlook is encouraging, IATA said on Tuesday as it raised
its 2017 forecast to $34.5 billion, up from an earlier $31.4 billion
estimate, but still lower than 2016.
Of the $38.4 billion, $27.9 billion will come from North American and
European airlines.
"We are eight years into this air travel cycle, but we see no reason at
present to expect that cyclical pattern to repeat itself," IATA Chief
Economist Brian Pearce said, with reference to a trend that would
usually indicate a major downturn was due.
After declining for six years in a row, passenger yields, a measure of
ticket pricing, are also expected to rise by 3 percent next year, after
falling 1.5 percent in 2017.
But not all the forecasts are so positive, with passenger demand
measured in revenue passenger kilometers set to rise by only 6 percent,
slightly less than 2017's 7.5 percent increase.
And cargo demand, also a bright spot in 2017 with demand up 9.3 percent
after a tough few years, is expected to moderate to 4.5 percent in 2018.
IATA said the forecast increase in passenger fares was in line with
expected inflation.
EUROPEAN UPGRADE
Rising ticket revenues have helped major European airlines report better
than expected profits this year, and IATA said it was upgrading its net
profit forecast for Europe to $9.8 billion this year, from a previous
estimate of $8.6 billion, and profits should rise further to $11.5
billion next year.
While tough competition has seen the demise of some carriers, improving
economies and robust demand rather than consolidation are key to rising
profit in Europe, Pearce said.
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A passenger plane flies through aircraft contrails in the skies near
Heathrow Airport in west London, April 12, 2015. REUTERS/Toby
Melville
In good news for airline investors, the industry's return on capital is expected
to exceed its cost of capital for a fourth year in a row next year.
With global profitability now on a more sustainable footing, IATA said airlines'
main focus was on keeping costs under control, with rising fuel prices and labor
costs set to weigh.
IATA predicts unit costs will rise 4.3 percent in 2018, after 1.7 percent in
2017, and it predicts an average jet fuel price of $73.8 per barrel next year,
up 12.5 percent.
"The industry is reacting to that cost pressure. We know from the announced
schedules that we are likely to see some slowdown in the increases in capacity
in 2018," Pearce said.
However, IATA said it was not concerned there was a pilot shortage after
high-profile cancellations at Ryanair <RYA.I> and American Airlines due to
rostering issues and after some U.S. airlines awarded high pay increases to
pilots this year.
Pearce said air travel demand had grown faster than expected, outpacing the
supply of new pilots.
"We expect to see the training sector respond and produce more pilots over
time," he said.
(Reporting by Victoria Bryan; Editing by Maria Sheahan and Alexander Smith)
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