Strong cargo growth will help airlines hike profits

IATA is forecasting  a 4.5% rise in global cargo carried from 59.9m tonnes in 2017 to 62.5m tonnes in 2018 in its latest analysis, contributing to an improvement in overall airline profitability to $38.4bn compared with an expected $34.5bn this year.
While the cargo growth foreseen is below the expected 9.3% in 2017, “demand for air cargo is at its strongest level in over a decade”, said IATA director general and chief executive, Alexandre de Juniac.
But while airlines are achieving sustainable levels of profitability: “It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses," he added.
IATA says that the cargo business continues to benefit from a strong cyclical upturn in volumes, with some recovery in yields.
However, the strong boost to volumes in 2017 was a result of companies needing to restock inventories quickly to meet unexpectedly strong demand, leading to cargo volumes growing at twice as fast as world trade (4.3%).
Cargo yields are expected to improve by 4.0% in 2018, slower than the 5.0% seen in 2017. While restocking cycles are usually short-lived, the growth of e-commerce is expected to support continued momentum beyond the rate of expansion of world trade in 2018.
IATA also predicts that cargo revenues will continue to do well in 2018, rising 8.6% from $54.5bn in 2017 levels to $59.2bn in 2018.
The strong cyclical rise in cargo markets has been a particular support for the Asia Pacific region, whose carriers account for 37% of global cargo capacity.
Here, anticipated growth in demand of 7.0%, will outpace announced capacity increases of 6.8%.
Overall airline costs continue to rise and will continue challenge profitability, however. Oil prices are expected to average $60/barrel for Brent Crude in 2018 (up 10.7% from $54.2/barrel in 2017) with jet fuel expected to rise even more quickly to $73.8 per barrel (up 12.5% on $65.6 in 2017).
Labour costs have been accelerating strongly and are now a larger expense item than fuel (30.9% in 2018).
Overall unit costs are expected to grow by 4.3% in 2018, a significant acceleration on the 1.7% increase in 2017 and will outpace an expected 3.5% increase in unit revenues.
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