Economy

Airline earnings to jump 11% as fares rise and cargo rebounds

Airline earnings to jump 11% as fares rise and cargo rebounds

The International Airport Transport Association (IATA) said the expected net profit is more than Dollars 34.5 billion projected for this year. The inventory-to-sales ratio in the United States is looking sideways, thereby indicating that the period when companies look to restock inventories quickly-which often gives air cargo a boost-has ended.

Jet fuel prices are expected to rise even more quickly to $73.8 per barrel (up 12.5 per cent on $65.6 in 2017). "While restocking cycles are usually short-lived, the growth of e-commerce is expected to support continued momentum in the cargo business beyond the rate of expansion of world trade in 2018", the association added.

North American airlines are once again primed to record the highest profits in the industry.

IATA said demand to and from North America in particular fell in year-on-year terms for the seventh consecutive month.

In the Asia-Pacific region, including India, airlines are expected to register profits of $9 billion in 2018, which would be marginally higher than $8.3 billion projected for this year.

Freight volumes are still expected to grow in 2018, although at a slower pace than in 2017. Demand to and from North America fell in year-on-year terms for the seventh consecutive month in September and it remains the only global market not to have grown in annual terms this year. Capacity grew 9.1 percent, but load factor decreased.3 percent. This was down from $1.1bn in 2016.

Demand will also overtake expected capacity growth of 5.7 per cent.

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The figures accounts for 190 of the world's airlines so "are likely to significantly underestimate the extent of the problem", IATA's assistant director for external affairs Tim Colehan said in Geneva.

All regions, except North America, improved load factors during the month, with an overall 0.8 percentage point increase to 80.8 percent.

Capacity increased 4.5% and load factor rose 1.3 percentage points to 84.9%, highest among regions.

Overall, IATA is expecting the industry-wide operating margin to squeeze to 8.1% next year from 8.3% in 2017, though it sees net margins rising to 4.7% next year from 4.6% this year.

In domestic traffic, India and China again showed the strongest growth, rising 20.4% and 10%, respectively, compared to a year ago. "This will outpace an expected 3.5 per cent increase in unit revenues", Pearce said.

Oil prices are expected to average $60 a barrel for Brent Crude in 2018, up 10.7 per cent from $54.2 per barrel in 2017, according to IATA.