Despite All That Nickel-and-Diming, It's Getting Harder for Airlines to Make a Profit

June 04, 2018

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2 min read

Despite All That Nickel-and-Diming, It's Getting Harder for Airlines to Make a Profit

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Even though most are squeezing in more and more seats and cutting back on some of their more generous passenger policies, airlines will likely still see a significant drop in profits this year.

The largest airlines in the world will likely collectively see their profits drop in the remaining months of 2018, new information from the International Air Transport Association says. IATA has slashed its global airline profit prediction for 2018 to $33.8 billion — a 12% drop from its December 2017 estimate of $38.4 billion for the year.

That's a major drop from global airlines' earnings in 2017, which clocked in right at a collective $38 billion.

Airlines in North America are estimated to earn about 44% of the industry's overall global profit in 2018, which comes out to about $15 billion in earnings, IATA said Monday at its annual meeting. That's a precipitous drop from the $18.4 billion North American-based carriers earned in 2017.

The main culprit of shrinking profit margins for carriers around the globe? Rising oil prices. Aviation fuel costs are anticipated to grow by about 30% this year, the aviation group said, with crude oil predicted to reach around $70 a barrel. That is a 27% jump in oil prices from 2017. Growing labor costs and higher interest rates are also factors negatively impacting airlines' bottom lines.

IATA's low profit prediction comes amid several airline CEOs saying the rising fuel costs will lead to higher airfares around the world. At least one airline has embraced the jump in oil prices as a positive prospect for profits. Emirates, the airline that's profits rose 67% in the 12-month period that ended March 31, said in its earnings report that the jump in income was due to higher oil prices.

Although the higher fuel prices meant higher operating costs for the Dubai-based carrier, Emirates reported it also "stoked the embers of economic recovery which contributed to better seat load factors and a modest climb in yields."

H/T: CNBC