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Air travel industry targets N11.8tr net profit in 2018


Air travel industry targets N11.8tr net profit in 2018
The global aviation industry has been projected to rake in the sum of N11.8 trillion ($38.4 billion) as net profit, being a 4.7 per cent net margin, in 2018.

The robust outlook, courtesy of the International Air Transport Association’s (IATA) industry forecast, is an improvement from the N10.6 trillion ($34.5 billion) (that is, 4.6 per cent net margin) expected net profit in 2017.

Meanwhile, the sector in Nigeria and other African countries is expected to continue on zero-profit spell. This is for reasons not unconnected with perennial low connectivity and load factor, high taxes, levies and operational costs, among others.

Nevertheless, IATA, which is the clearing house for over 275 airlines in the world, is excited with the projection being an avenue for new investments, employment opportunities, infrastructure development and more contributions to countries’ Gross Domestic Product (GDP).

Highlights of expected 2018 performance include: a slight decline in the operating margin to 8.1 per cent (down from 8.3 per cent in 2017); a rise in overall revenues to $824 billion (+9.4 per cent on 2017 revenues of $754 billion) and rise in passenger numbers to 4.3 billion (+6.0 per cent on the 4.1 billion passengers in 2017).

Others are: rise in cargo carried to 62.5 million tonnes (+4.5 per cent on the 59.9 million tonnes in 2017); slower growth for both passenger (+6.0 per cent in 2018, +7.5 per cent in 2017) and cargo (+4.5 per cent in 2018, +9.3 per cent in 2017) demand and average net profit per departing passenger of $8.90 (up from $8.45 in 2017).

In addition, strong demand, efficiency and reduced interest payments will help airlines improve net profitability in 2018 despite rising costs. 2018 is expected to be the fourth consecutive year of sustainable profits with a return on invested capital (9.4 per cent) exceeding the industry’s average cost of capital (7.4 per cent).

IATA’s Director General and Chief Executive Officer (CEO), Alexandre de Juniac, remarked that these are indeed good times for the global air transport industry.

According to de Juniac, “Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. More people than ever are traveling. The demand for air cargo is at its strongest level in over a decade. Employment is growing. More routes are being opened. Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labor and infrastructure expenses.

“The industry also faces longer-term challenges. Many of them are in the hands of governments. Aviation is the business of freedom and a catalyst for growth and development. To continue to deliver on our full potential, governments need to raise their game—implementing global standards on security, finding a reasonable level of taxation, delivering smarter regulation and building the cost-efficient infrastructure to accommodate growing demand.

“The benefits of aviation are compelling—2.7 million direct jobs and critical support for 3.5 per cent of global economic activity. And the industry is ready to partner with governments to reinforce the foundations for global connectivity that are vital to modern life,” he said.

On the African front, the projection has it that carriers are expected to continue to make small losses of $100 million in 2018 following a collective net loss of $100 million in 2017. The airlines have not made profit in the last eight years, IATA said.

However, stronger forecast economic growth in the region is expected to support demand growth of 8.0 per cent in 2018, slightly outpacing the announced capacity expansion of 7.5 per cent.

“The wider economic situation is only improving slowly in Africa, which is hampering the financial performance of its airlines. The key Nigerian economy is only just out of recession and growth in South Africa remains extremely weak.

“While traffic is growing, passenger load factors for African airlines are just over 70 per cent, which is over 10 percentage points lower than the industry average. With high fixed costs this low utilisation makes it very difficult to make a profit. Stronger economic growth will help in 2018, but the continent’s governments need a concerted effort to further liberalise to promote growth of intra-Africa connectivity,” the report read in part.

Performance drivers in 2018 will be passenger, cargo, cost and debt. Passenger numbers are expected to increase to 4.3 billion in 2018. The cargo business continues to benefit from a strong cyclical upturn in volumes, with some recovery in yields. Volumes are expected to grow by 4.5 per cent in 2018 (down from the 9.3 per cent growth of 2017).

The biggest challenge to profitability in 2018 is rising costs. Oil prices are expected to average $60/barrel for Brent Crude in 2018 (up 10.7 per cent from $54.2/barrel in 2017). Jet fuel prices are expected to rise even more quickly to $73.8 per barrel (up 12.5 per cent on $65.6 in 2017).

In this article:
Alexandre de JuniacIATA
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