Despite entering what is typically considered the downturn year of a cyclical period in air travel, the aviation industry is expected to continue its strong growth in 2018, underpinned by strong global economic growth.
While the past three cycles in air travel lasted around eight years before ending in a downturn, strong global gross domestic product (GDP) growth extended the current air travel cycle, International Air Transport Association (Iata) chief economist Brian Pearce said on Tuesday.
“We see no reason for this cycle to end at the moment. After growth of 7.5% in global revenue passenger kilometres this year, we are forecasting further above-trend expansion of 6% in 2018, helped by continued strong global GDP growth next year of 3.1%,” he told media during an global media day, in Geneva, Switzerland.
The last low point in air travel was after the global financial crisis in 2009.
Air travel continues to grow strongly, with 2018 marking the fourth consecutive year of sustainable profits, despite rising costs, and a 5.6% growth in the number of air passengers – which exceeded four-billion for the first time in 2017 – to 4.3-billion in 2018.
Iata forecasts global industry net profit will rise to a new record of $38.4-billion in 2018, from an expected net profit of $34.5-billion for this year.
Overall, revenues are expected to expand by 9.4% to $824-billion, with passenger revenues growing to $581-billion in 2018, a 9.2% rise on this year, and cargo revenues rising 8.6% to $59.2-billion in 2018.
Cargo freight tonne kilometres are expected to grow by 4.5% in 2018, slowing from the 9.3% growth registered this year as companies restock inventories quickly to meet unexpectedly strong demand.
“Restocking cycles are usually short-lived, the growth of e-commerce is expected to support continued momentum in the cargo business beyond the rate of expansion of world trade in 2018,” said Pearce.
“These are good times for the global air transport industry,” added Iata director-general and CEO Alexandre de Junaic.
“Safety performance is solid. We have a clear strategy that is delivering results on environmental performance. More people than ever are travelling. 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,” he said.
However, it remained a “tough business”, with the industry being challenged by rising fuel, labour and infrastructure expenses.
Oil prices are expected to increase by 10.7% to an average of $60/bl in 2018, while jet fuel prices are expected to rise by 12.5% to $73.80/bl.
“Airlines with low levels of hedging (in the US and China for example) are likely to feel the impact of this increase more immediately than those with higher average hedging ratios (Europe). The fuel bill is expected to be 20.5% of total costs in 2018, up from 18.8% in 2017,” he explained.
Further, labour costs have been accelerating strongly and, at 30.9%, are now a larger expense item than fuel.
Iata expects that overall unit costs will grow by 4.3% in 2018, a significant acceleration on the 1.7% increase this year and outpacing an expected 3.5% increase in unit revenues.