GENEVA: Asia Pacific carriers are projected to record a staggering US$10.4 billion or 8.3 per cent higher net profit in 2019, from the projected US$9.6 billion this year.
The International Air Transport Association (IATA) chief economist Brian Pearce said the region was also expected to record net profit per passenger of about US$6.15 or 3.8 per cent of net margin.
He said the projection would be derived from the region’s diverse market with strong growth from new low cost carriers (LCCs) entrants and outbound cargo from key manufacturing centres.
“Cargo revenue growth has slowed from 2017, but it remains positive for airlines in the region. Lower fuel cost, low levels of fuel hedging and strong regional economic growth would also support profitability in 2019 for the region,” he said at a briefing during Global Media Day 2018, here last week.
On global airline industry projection, he said the sector’s net profit to hit US$35.5 billion next year, slightly ahead of US$32.3 billion net profit expected in 2018.
“Passengers numbers are expected to reach US$4.59 billion from US$4.34 billion forecast in 2018. Cargo tonnes carried are also expected to reach 65.9 million in 2019 from 63.7 million forecast this year,” he said, adding that the projection was based on cautious optimism.
Despite the financial market volatility, Pearce said industry observers had continued to expect economic growth in 2019, noting that the projection would still be good and supportive for the airline industry.
“Jobs are still being created at a healthy rate, business investment is still rising, government fiscal policies are supporting growth and monetary policies are not yet holding growth back,” he added.
He said air travel had shown a lot of momentum, driven by Asian domestic markets in the first 10 months of 2018.
“Large market areas like Europe and Asia-Pacific international revenue passengers kilometres (RPKs) have contributed almost half of the growth seen so far this year.
“This is considerable momentum to travel growth as we go into 2019,” he said, adding that the travel growth is expected to slow but the RPKs growth is expected about six per cent in 2019, above the 20-year average.
Pearce said fuel price had also fallen sharply over the past month, a major short-term positive contributor for the airline sector.
“The fall was driven partly by a reassessment of the impact of Iran sanctions. But fundamentally the oil market is oversupplied with increase production from the US.
“The Organisation of the Petroleum Exporting Countries (OPEC) cuts are also not expected to stop a build up of oil inventories,” he said.
He said IATA’s assumption for oil prices in 2019 would be around US$65 per barrel, significantly lower than 2018’s US$73 per barrel.
“However, the full benefit of lower oil prices will not be felt by airlines in 2019 because the delay caused by hedging in some regions, particularly in Europe. The fuel bill will rise in 2019 to hit US$200 billion, representing 24.2 per cent of operating costs on average,” he said.
Pearce said lower spot fuel prices would bring some relief (lower hedging ratios) from the intensifying downward pressure on airline operating margins, which squeezed margins in the second-quarter and third-quarter in 2018.
Therefore, he said the fourth-quarter 2018’s results would show some improvement and margins are still significantly higher than just four years ago.
“Break even load factors have risen in the last two years with higher costs. But airlines have limited this rise through the introduction of ancillaries income,” he said.
Pearce said airlines’ return on capital should stabilise in 2019 due to robust economic growth and lower oil prices, enabling airline industry to stabilise profitability next year.
“This should grow with an average return on capital of about 8.6 per cent. The cost of capital (what investors expect to earn) is rising with higher bond yields. But the positive gap remains.
“We forecast the industry will create value for its investors for the fifth consecutive year in 2019,” he said.