Regional airlines brace for $1-B drop in profits in 2017

Asia Pacific-based airlines will see an estimated $1-billion decline in profits next year as yields are squeezed by increased competition and higher oil prices, the  International Air Transport Association said.

The global airline trade organization said in a recent report that carriers in the region would post a combined net income of $6.3 billion next year, down from  an estimated $7.3 billion in 2016.

IATA said the global airline industry was preparing for a “soft landing” in 2017 with a full-year profit of $29.8 billion. For this year, it would hit a record $35.6 billion, IATA said.

“That’s a very soft landing and safely in profitable territory. These three years are the best performance in the industry’s history—irrespective of the many uncertainties we face,” Alexandre de Juniac, IATA’s director general and CEO, said as part of their outlook.

IATA noted the decline in profits and return on capital invested for 2017 was “being driven by a rise in breakeven load factors, as unit costs are now rising, and a moderate fall in achieved load factors, as demand slows more than capacity growth.”

For Asia Pacific, IATA said capacity would rise by 7.6 percent next year,  outpacing the growth in demand, seen at 7 percent.  There was more optimism in cargo demand, it said.

IATA notes that higher oil prices “will have the biggest impact on the outlook for 2017.”

It noted that oil prices, which averaged at $44.6 (brent) last year, will rise to $55 per barrel in 2017. That would hike jet fuel prices to $64.9 per barrel next year, up almost 25 percent, IATA said.

Still, it noted that fuel accounts for 18.7 percent of the global airline industry’s cost— significantly lower than the peak of 33.2 percent between 2012 and 2013.

Across the globe, North American carriers would remain the most profitable. IATA said profits here would hit $18.1 billion next year, lower than $20.3 billion expected in 2016.