Global airline profits are set to suffer their first annual plunge in six years after reaching a record in 2016 as higher oil prices clip margins, according to the industry’s main trade group, Bloomberg reports.
Net income is likely to total $29.8 billion worldwide in 2017, the International Air Transport Association , IATA, said in a statement Thursday.
That’s 16 percent lower than the $35.6 billion forecast for this year, a figure that itself represents a downward revision from the $39.4 billion estimated in June.
The drop would be the first since 2011, when high fuel prices and disruption caused by the so-called Arab Spring political protests and a devastating earthquake and tsunami in Japan led earnings to fall by half.
While airlines have this year been reaping record profits following a slump in the price of crude, IATA reckons a barrel of oil will average $55 in 2017, up from $44.60, lifting jet-fuel expenses to almost 19 percent of overall costs. Alexandre de Juniac, IATA’s new chief executive officer, said the profit slide amounts to a “very soft landing” for the sector.
“These three years are the best performance in the industry’s history,” De Juniac said at IATA’s annual media day in Geneva. At the same time, “risks are abundant — political, economic and security among them. And controlling costs is still a constant battle in our hyper-competitive industry.”
Though the higher oil price will squeeze earnings, airlines have improved their ability to “efficiently restructure and manage their business,” making the industry more resilient, De Juniac, formerly CEO of Air France-KLM Group, where he clashed with unions over cost cuts, said on Bloomberg Television.
IATA, which represents 265 carriers accounting for 83 percent of global air traffic, pared the earnings forecast for this year because of slowing global economic growth and a 2 percent increase in non-fuel costs.
The new 2016 estimate, still an all-time high, suggests industry profit will be $300 million higher than in 2015, with a margin of 5.1 percent of sales, also a record.
