Airline profits expected to take $5bn hit, warns research

The International Air Transport Association has released forecasts predicting a $5 billion (£3 billion) fall in profits for airlines in 2018.

The IATA expects the 2018 collective net profit for airlines to be $33.8 billion (£25.3 billion) and blamed rising interest rates and trade tensions for the slump in this year’s total profits.

“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.” said IATA’s director general, Alexandre de Juniac.

“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,” he added.

The price of oil has significantly climbed in 2018, with May breaking past the $80 per barrel mark for the first time in three and a half years following Donald Trump’s withdrawal from the Iran deal. 

The IATA expects the full-year average cost of Brent crude oil to surpass $70 per barrel in 2018. This is a 27.5 percent increase from the average of $59.4 per barrel seen last year.

As well as the increase in oil price, Juniac also warned of the “political forces pushing a protectionist agenda” and how this would affect airline profitability.

“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 said at a conference held in Sydney.

“Generally, we think … that all these barriers to trade are bad news from an industry standpoint,” he added.