SYDNEY: The rising cost of fuel will eat into profits “significantly” from next year, Alexandre de Juniac, Chief Executive Officer of the International Air Transport Association (IATA), said in Sydney on Thursday, 31 May.
“We are probably at the peak of the cycle,” he said, addressing media before IATA’s annual meeting next week. “Next year will be less positive.”
Airlines will still report “solid profits” for 2018, although not at the level IATA previously expected, he said. The body in December forecast total net profits would be $38.4 billion this year, up from $34.5 billion in 2017, marking a ninth straight year of profits. Updated numbers will be released on Monday, he said.
If oil prices continue past $80 a barrel, “it will bite hard,” de Juniac said. Brent crude is currently at a more than three-year high of about $77 a barrel.
“A continually elevated fuel price would hurt near-term earnings across the airline industry,” Bernstein analyst Daniel Roeska said in a note to clients Wednesday, estimating higher fuel costs will reduce potential earnings by carriers across Europe by as much as 3 billion euros this year. That could “challenge” Norwegian in the shorter term, the analyst concludes, as the airline “could get caught in a perfect storm of declining yields, rising fuel, and increasing interest rates.”
IATA represents about 280 carriers worldwide, or 83 per cent of total air traffic. It’s inevitable that airlines will have to pass some of the fuel burden onto passengers, de Juniac said.