Geneva: A robust rise in cargo movement and strong travel demand are expected to boost profits of Asia-Pacific airlines next year to US$9 billion (294 billion baht).
That amount is 8.38% higher than this year's projected net profit of $8.3 billion for the region, according to the International Air Transport Association (IATA).
Such a growth projection is consistent with the upward outlook in profitability for airlines around the world, which are expected to see an 11.3% rise in net profit in 2018 as a result of improving economies and healthy travel demand.
Airlines worldwide are projected to rake in $38.4 billion in 2018, IATA said on Tuesday. The association raised its 2017 forecast to $34.5 billion, up from an earlier estimate of $31.4 billion, but still lower than 2016's level of $35.3 billion.
Asia-Pacific airlines' contribution to overall 2018 profits is forecast at 23.4%, with the bulk coming from North America, whose airlines are forecast to record a combined net profit of $16.4 billion, followed by $11.5 billion by European carriers.
The strong cyclical rise in cargo markets has been a particular boon for Asia-Pacific, whose carriers account for 37% of global cargo capacity, said IATA director-general Alexandre de Juniac.
Anticipated growth in cargo movement demand of 7% would outpace the announced capacity increase of 6.8%.
Passenger market conditions vary across the region. Domestic markets have strengthened in China, India and Japan.
New low-cost entrants in Asean are intensifying competition and putting a cap on profitability.
But there has been a pause in competitive pressures from the "super connectors" on long-haul routes as they face various challenges in their home markets.
"We are eight years into this air travel cycle, but we see no reason to expect that cyclical pattern will repeat itself," said IATA chief economist Brian Pearce, in reference to a trend that would usually indicate a major downturn is due.
Next year is forecast to represent the fourth consecutive year of sustainable profits for the global airline industry, with a return on invested capital at 9.4%, exceeding the industry's average cost of capital (7.4%).
"These are good times for the global air transport industry," said Mr De Juniac.
The positive outlook is the result of solid airline safety performance; a clear strategy that is delivering results on environmental performance; higher-than-ever traveller figures; a decade-plus high in air cargo demand; growing employment; and the opening of new routes.
"It's still, however, a tough business, and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses," he said.
Mr De Juniac said the $38.4 billion in profits the global airline industry is anticipated to make next year is still $10 billion shy of Apple's 2016 profit.
"Per passenger, airlines on average will make less than $9. And the net margin of 4.7% has been hard won," he said.
The highlights of 2018's anticipated performance include:
• A slight decline in the operating margin to 8.1%, from 8.3% in 2017.
• An improvement in net margin to 4.7%, from 4.6% in 2017.
• A rise in overall revenues to $824 billion, from $754 billion in 2017.
• A rise in passenger numbers to 4.3 billion, from 4.1 billion passengers in 2017.
• A rise in cargo carried to 62.5 million tonnes, from 59.9 million tonnes in 2017.
• Slower growth for both passenger volume, at 6% compared with 7.5% growth in 2017, and cargo at 4.5% in 2018 versus 9.3% in 2017.
• Average net profit per departing passenger of $8.90, up from $8.45 in 2017.
For most airlines, the financial performance does not match the value they create, said Mr de Juniac.
But airlines, collectively, have been in the black since 2010.
"Over the last three years airlines have made an aggregate industry profit in excess of our cost of capital -- something that has never happened before," Mr De Juniac said.
"For any other business, that's normal. For the airline industry, it's an extraordinary achievement! And hopefully, we are on the way to normalising it."
But the industry also faces longer-term challenges and many of them are in the hands of governments, said Mr De Juniac.
"Aviation is the business of freedom and a catalyst for growth and development," he said.
Mr De Juniac said for airlines to deliver on their full potential, governments need to raise their game, implementing global standards on security, finding a reasonable level of taxation, delivering smarter regulations and building cost-efficient infrastructure to accommodate growing demand.
"The benefits of aviation are compelling -- 2.7 million direct jobs and critical support for 3.5% 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.
Regional performance
All regions are expected to report improved profitability in 2018 and all regions are expected to see demand growth outpace capacity expansion.
Carriers in North America continue to lead on financial performance, accounting for nearly half of the industry's total profits.
North America: Airlines in this region are forecast to generate the strongest financial performance with net profits of $16.4 billion in 2018, up from $15.6 billion in 2017.
Asia-Pacific: Airlines in this region are forecast to see profits of $9 billion in 2018, up from $8.3 billion in 2017.
Europe: Europe-based carriers are expected to deliver a net profit of $11.5 billion in 2018, up from $9.8 billion in 2017.
Latin America: Airlines in Latin America are forecast to generate a $900 million net profit in 2018, up from $700 million in 2017.
Middle East: Middle East carriers are forecast to see net profits improve to $600 million in 2018, from $300 million in 2017.
Africa: African carriers are expected to continue to make small losses of $100 million in 2018 following a collective net loss of $100 million in 2017.
Economic Impact of Aviation
• Unique city pairs served by airlines grew to over 20,000 in 2017, up 1,351 from 2016 and double the 10,000 city pairs served in 1996. This saves time for users and opens new links for tourism, trade and investment.
• Since 1996 the inflation-adjusted cost of air transport to consumers has halved.
• International tourists travelling by air are expected to spend more than $750 billion in 2018, a rise of 15% in just over 2 years.
• The value of goods carried by airlines is expected to exceed $6.2 trillion in 2018, representing 7.4% of world GDP.
• Direct employment by airlines will exceed 2.7 million worldwide in 2018. On average across the world, IATA forecast that in 2018, each airline employee will generate over $109,000 in gross value added (the firm-level equivalent to GDP, which is considerably higher than the economy-wide average).
Workers unload cargo at Suvarnabhumi airport. A robust rise in cargo movement is expected next year. SOMCHAI POOMLARD