IATA: lower profit expected due to fuel costs & political affairs
AeroTime exclusively from Sydney | Due to growing fuel prices, increasing labour costs and rise in the interest rate cycle, the International Air Transport Association (IATA) is now forecasting airlines to achieve a collective net profit of $33.8 billion (4.1% net margin) in 2018. It is a downturn estimation in comparison to December 2017 estimations that had forecast profit of $38.4 billion.
During the 74th IATA Annual General Meeting, taking place in Sydney (Australia), Brian Pearce, IATA’s Chief Economist called current economic environment “challenging”. However, economic growth is still expected despite growing risk factors that include rising jet fuel price (which, in Pearce’s words, is almost 50% more expensive than it was at this time in 2017). Political uncertainty, like aluminium tariffs, is another growing risk factor.
The full-year average cost of Brent Crude is expected to be $70/barrel - up from $54.9/barrel in 2017 (+27.5%) and previous 2018 expectation of $60/barrel. Jet fuel prices are expected to rise to $84/barrel (+25.9%). Fuel costs will account for 24.2% of total operating costs (up from a revised 21.4% in 2017).
In turn, growing uncertainty of global affairs is fuelled by increase of "political forces pushing a protectionist agenda", the U.S. withdrawal from the Iran nuclear deal, impact of Brexit, numerous ongoing trade discussions and geopolitical conflicts.
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