Airlines face rising fuel and labour costs in 2018

Major airlines will see their profits affected by rising fuel and labour costs, said the International Air Transport Association (IATA).

IATA is a trade association representing 278 airlines, primarily major carriers, across 117 countries.

IATA reduced its profit forecast for this year by 12% to $33.8 billion.

Last year, airlines earned a record $38 billion.

However, as noted by the IATA, this figure was distorted by special accounting items such as one-off tax credits which boosted 2017 profits.

The return on invested capital is expected to be 8.5% in 2018, down from 9% in 2017. This is figure is still above the average cost of capital, which has increased to 7.7% on higher bond yields.

Overall revenues for airlines are forecast to increase to $834 billion (up 10.7% from $754 billion in 2017).

Airlines are expected to take delivery of over 1,900 new aircraft this year, “many of which will replace older and less fuel-efficient aircraft,” IATA said.

Alexandre de Juniac, IATA’s Director General and CEO, commented:

“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.

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,”