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Airline profits to slump in 2018, industry body says

Key Points
  • Global airline profit in 2018 is forecast to reach $33.8 billion.
  • IATA says operating margins are feeling some pressure from rising oil prices and labor costs.
  • The industry body also warned on the dangers of trade wars.

Profits at the world's biggest airlines will dip this year as fuel and labor costs and interest rates all rise, according to the industry's trade body.

The International Air Transport Association (IATA) has cut its profit forecast for 2018 by 12 percent to $33.8 billion from its December estimate of $38.4 billion.

This marks a dip from 2017, when airline profits reached a record $38.0 billion. At its annual general meeting Monday, IATA noted that the 2017 total had been inflated by one-off tax credits.

Airlines' fuel costs this year are forecast to rise by nearly 30 percent as the price of a barrel of oil ticks higher. IATA modeled its forecast using a crude oil price of $70 a barrel 2018. That matches J.P. Morgan's January price forecast.

North American airlines will take a 44 percent share of global profit, equating to $15 billion, in 2018, IATA said. That number represents a sharp fall from the $18.4 billion posted in 2017.

IATA CEO Alexandre De Juniac on December 8, 2014.
Fabrice Coffrini | AFP | Getty Images

Following the release, IATA's director general and CEO, Alexandre de Juniac, told reporters in Sydney that rising labor costs and trade tensions could also negatively affect airlines. De Juniac said airlines could be hit by the effects of "political forces pushing a protectionist agenda."

Despite the reduction in margins, he remained upbeat, noting that, on average, the airlines' return on invested capital will top the cost of capital for a fourth consecutive year.

"At long last, normal profits are becoming normal for airlines," he said.

IATA claimed that the 2018 average return airfare, before surcharges and tax, is expected to be $380, 59 percent below 1998 levels after adjusting for inflation.

The industry body also said it expected 1,900 new commercial aircraft to be delivered to airlines in 2018.