Rising oil prices and slowing demand will see airline profits fall for the first time in six years in 2017, IATA said.
The organisation, which represents around 260 airlines, said net profits will drop 16 per cent to $29.8 billion next year. That’s down from the $35.6 billion figure forecast earlier in 2016.
Expected higher oil prices will have the biggest impact on the outlook for 2017. This year oil prices averaged $44 a barrel, this is forecast to increase to $55 next year.
Alexandre de Juniac, IATA’s new chief executive officer, said the profit slide amounts to a “very soft landing” for the sector.
“These three years are the best performance in the industry’s history,” De Juniac said in a statement. “While the negative traffic impact from terror attacks and political instability in parts of the world has receded, the long downward trend in yield – which helped to stimulate travel – has levelled off. Furthermore, the recent OPEC agreement to restrict oil production suggests fuel prices have ended their slide.”
De Juniac added: “We need to put this into perspective. Record profits for airlines means earning more than our cost of capital. For most other businesses that would be considered a normal level of return to investors.
“But three years of sustainable profits is a first for the airline industry. And after many years of hard work in restructuring and re-engineering the business the industry is also more resilient. We should also recognise that profits are not evenly spread with the strongest performance concentrated in North America.”
IATA predicts the average return fare (before surcharges and tax) to be $351 in 2017, down from $363 this year and $407 in 2015.