Airline executives tip rising profitability despite fuel increases

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January 31, 2018
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Airbnb mulls airline possibilities. Photo: Wikicommons

A majority of senior airline executives still expect profitability to increase in 2018 on the back of robust demand growth and the strength of the global economy.

More than half of airline chief financial officers and heads of cargo — 56 percent –  taking part in the International Air Transport Association’s latest business confidence survey said they expect profitability to improve over the next 12 months.

But the proportion who expect profits to fall hit its highest level since the second quarter of 2017, with many citing the impact of higher oil prices.

Helping to tip the balance in favour of a positive outlook was an expectation of robust demand growth in both passenger and cargo businesses.

The proportion of respondents expecting passenger volumes to rise further over the year ahead rose to its highest level for a decade to hit 86 percent.

Less than 5 percent expected a fall in demand and a forward-looking weighted average score IATA uses to track demand hit its highest level since the fourth quarter of 2013.

Expectations are also higher in cargo, with IATA’s forward-looking score at its highest level in three years and a number of respondents noting the balance between supply and demand is expected to remain favourable in the year ahead.

Just over a third of the executives expected costs to increase in the coming year, with fuel cited as a key driver.

But 22 per cent expected costs to fall.

This was driven partly by internal productivity gains and cost reduction programs, including the addition of more fuel-efficient aircraft.

Eighty percent expected yields — a measure of average fares — to remain steady or increase in the year ahead. This came after more than half reported higher passenger yields in the fourth quarter of 2017 compared to a year ago.

IATA said the 55 percent who reported higher fourth-quarter yields represented a decline from the 65 percent figure in its last survey but was still the second highest proportion since mid-2012.

“This result suggests that passenger yields are finally starting to trend upwards, although we are still waiting to see clear evidence of this in the ticketing data that we track,’’ it said.

Expectations were similar in the cargo market with 48 per cent expecting yields to remain unchanged and 32 percent expecting them to increase.

Employment prospects were buoyant with 37 per cent of executives saying they expected to boost staffing levels in the year ahead and a similar proportion saying they would keep levels unchanged.