Projected profits for the world's largest airlines have been slashed in the wake of higher costs, according to the industrys trade body.
Profit projections have been cut 12 per cent from an earlier forecast in December last year, from $38.4bn to $33.8bn.
Rising fuel prices, higher labour costs and rises in interest rates have all contributed to the fall in the profit forecasted by the International Air Transport Association (IATA).
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Transport analyst Rob Byde said: “2017 was a record year for airline profits and some degree of normalisation was inevitable. The immediate challenge is higher fuel costs. At least initially, this will squeeze margins but may also lead to struggling carriers failing or being acquired. Budget carriers tend to win in this environment.”
Professor Loizos Heracleous of Warwick Business School said: “Fuel and salaries are the top two costs for airlines and given the uncontrollable price of fuel and slim profit margins, performance will always be impacted when fuel prices move,” though he added that the airline industry has become more efficient in the last decade.
Alexandre de Juniac, IATAs director general, said: “Solid profitability is holding up in 2018, despite rising costs."
He said: “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.”
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The rise in oil prices, which temporarily broke $80 per barrel last month, was in large part due to geopolitical tensions in Iran and Venezuela.
European airlines are thought to reach $8.6bn of net post-tax profits in 2018 (up from $8.1bn in 2017), making them second only to those in North America.
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