Airlines seen staying profitable due to oil price drop

The global trade group of the world’s airlines is expecting oil prices to drop in 2019, helping fuel another year of profitability.

The International Air Transport Association (Iata), in its year-end forecast, said the average oil price this year would be lower by 10.9 percent to an average of $65 a barrel, which will help support demand for air travel. Iata said jet fuel prices, in particular, would drop by 7.2 percent to an average of $81.30 a barrel for the year.

“We had expected that rising costs would weaken profitability in 2019. But the sharp fall in oil prices and solid GDP (gross domestic product) growth projections have provided a buffer,” Alexandre de Juniac, Iata’s director general and CEO, said in a statement.

Iata attributed the decline to increased oil production in the United States and rising oil stockpiles. Higher oil prices had squeezed margins for airlines around the world through 2018, including carriers based in the Philippines.

In September, the Philippines’ Civil Aeronautics Board approved a fuel surcharge mechanism, which airlines typically pass on to passengers, to help airlines offset fuel costs. Philippine Airlines and Cebu Pacific announced they would tap the mechanism to cushion losses.

Iata said favorable economic growth and lower oil costs would usher in profitability in the airline industry for a 10th straight year.

Taken together, the global industry will post a net profit of $35.5 billion, up almost 10 percent year-on-year.

It said all regions, save for airlines in Africa, were expected to earn this year. Carriers in Asia Pacific, in particular, are forecast to post a net profit of $10.4 billion, up from $9.6 billion in 2018.

“Lower fuel costs, low levels of fuel hedging and strong regional economic growth are supporting profitability in 2019 in this region,” Iata noted.

The strongest financial performance will come from US-based carriers, Iata said, with profits amounting to $16.6 billion, up almost 13 percent.

Demand through the year will also remain healthy, with Iata forecasting a 6-percent growth in passenger traffic for the year.

“Air travel has never been such a good deal for consumers. Not only are fares staying low, the options for travelers are expanding. Some 1,300 new direct links between cities were opened in 2018. And 250 million more journeys by air occurred in 2018 than in 2017,” De Juniac said.