Rising fuel and labour costs to wipe $4bn off airlines’ profits this year, research shows

Outlook for the industry could be harmed by uncertainty over Brexit and growing trend of protectionist policies

The IATA said airlines will still record a "solid performance" this year (REUTERS)

Airlines will make $5bn (£3bn) less profit than previously expected this year, and $4bn less than last year, according to new forecasts by the International Air Transport Association.

The IATA expects airlines to report a collective net profit of $33.8bn in 2018, and said this would be a “a solid performance despite rising costs, primarily fuel and labor, but also the upturn in the interest rate cycle”. The US central bank raised interest rates in March, and the Bank of England is widely expected to hike rates in the coming months.

In addition, oil prices have been climbing in recent weeks, and in May broke past the $80 per barrel mark for the first time in three and a half years after President Trump withdrew the US from the Iran nuclear deal.

The IATA said it expects the full-year average cost of Brent crude oil to be $70 per barrel, up 27.5 per cent from the average of $59.40 per barrel in 2017, while jet fuel prices are set to rise 25.9 per cent to $84 per barrel.

The forecast net profit for this year has been revised down from a previous estimate of $38.4bn, and the IATA’s expected 2018 profit would also come in well below the record $38bn reported by airlines last year.

The group also said operating profits, “though still high by past standards, have been trending slowly downwards since early 2016, as a result of accelerating costs”.

Alexandre de Juniac, IATA’s director general and CEO, said: “Solid profitability is holding up in 2018, despite rising costs. The industry’s financial foundations are strong with a nine-year run in the black that began in 2010. And the return on invested capital will exceed the cost of capital for a fourth consecutive year.

“At long last, normal profits are becoming normal for airlines. This enables airlines to fund growth, expand employment, strengthen balance sheets and reward our investors.”

Meanwhile, growing uncertainty about global affairs “could present risks to the industry’s outlook”, according to the IATA. The group said particular risks included the advancement of political forces pushing a protectionist agenda, uncertainty following the US withdrawal from the Iran nuclear deal, and a lack of clarity on the impact of Brexit.

“Aviation spreads prosperity and enriches the human spirit. That truth lays the foundation for a very important message. The world is better off when borders are open to people and to trade. And our hard work as an industry has primed aviation to be an even stronger catalyst for an ever more inclusive globalization,” said Mr de Juniac.