Whether it’s no frills budget travel or all-in luxury that global airlines are offering, there is one constant that carriers are continuing to grapple with: high fuel prices.
The global industry’s profit is set to rise this year but more modestly than expected less than three months ago as those high fuel costs present a sustained headwind, the International Air Transport Association said Monday. IATA reckons carriers are set to make an $18 billion aggregate profit, down $700 million from a March projection and $1.7 billion below a December outlook.
“Airlines have been living through the most persistently high period of fuel prices that they’ve ever seen,” said Brian Pearce, chief economist for the airline-industry body that represents more than 200 carriers. Jet fuel prices have been at near-record levels for the past three years, he said in Doha on sidelines of IATA’s annual meeting. The average jet fuel price has softened in recent weeks but at $960.8 per metric ton in early May, it was still up 4% from a year ago, according to IATA’s latest jet-fuel monitor.
“In many ways it is remarkable the industry is making any profit at all,” Mr. Pearce said.
Profits for airlines are still rising after reaching $12.9 billion last year. That reflects many structural changes airlines have made including slowing capacity growth to fill more seats as traffic volumes rise.
But it’s not just high fuel prices which are squeezing profit margins. Carriers also are contending with relatively slack growth in high-margin premium traffic. As confidence in economic growth has waned, business travelers are making fewer bookings, Mr. Pearce said, though the situation may be temporary. Meanwhile, a prolonged slump in air cargo continues, he added.
High fuel costs have been a boon to some, namely aircraft makers such as Boeing Co.BA -0.10% and Airbus Group NVEADSY 0.00% as they have capitalized on carriers’ willingess to invest in less thirsty aircraft, in the form of more efficient versions of old planes, like Boeing’s 737 and 777 and Airbus’s A320 and A330 aircraft, or brand new planes like Boeing’s 787 and Airbus’ A350. Airlines are expected to spend $150 billion on new planes this year, Mr. Pearce said.
There are no indications fuel price pressure will ease, with it too early to judge whether booming oil and gas production in the U.S., which could turn the country into an important exporter, will provide relief, Mr. Pearce said.
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