Air International — September 2017

SCENE

SCENE

Good Times, Warning Signs

In 2016 the share of fuel in total costs,

according to IATA, dropped to 20.6% and

the total bill for fuel amounted to $

billion. In 2017, the organisation’s forecast

puts the fuel bill at $129 billion and the

share in total costs at a staggeringly low

18.8%. For the first time since 2004, less

than one in five dollars spent by airlines will

be spent on fuel.

At the same time, however, the average

jet fuel price is expected to grow from $52.

per barrel in 2016 to $64 in 2017. While still

less than half of what fuel cost in 2012, the

trend is clear. More fuel efficient aircraft help

moderate the impact of growing jet fuel

prices, but the industry is conscious that the

fuel-for-pennies bonanza of recent years is

coming to an end.

Tough job market

Despite the slight drop in fuel costs, the total

costs of airlines are set to increase by 6.8%

to $687 billion. This will be driven by a 9.2%

increase in non-fuel costs to $558 million. A

large contributor to this growth will be higher

staff costs.

With the looming pilot shortage

becoming an increasing concern for the

airlines – Boeing predicts that by 2035

1.5 million pilots and technicians will

be needed worldwide in the industry

• wages and training costs are set to
  increase and will be an ever-growing
  portion of airlines’ expenses.
  Another challenge is posed by the
  growing expectations of equipment and
  service providers. Companies such as
  aircraft manufacturers, maintenance
  operators and ground handling providers,
  seeing the record profits of airlines, are
  trying to get a share for themselves and
  increase prices, observes IATA.
  To prepare for the potential pressure on
  results, airlines are cautious with reinvesting

profits. Despite unions’ demands, which

push for increased profit sharing with

employees, most airlines retain profits and

store cash for the future tougher times.

Analysts predict that mid-sized airlines

can expect difficult times, given their smaller

financial cushion and bigger exposure

to growing costs. On the other hand,

North American airlines seem to be in the

best position, with the highest profit per

passenger, significant market concentration

limiting competition from new entrants and

the least pronounced overcapacity.

De Juniac concluded: “Airlines

are defining a new epoch in industry

profitability. For a third year in a row we

expect returns that are above the cost of

capital. But, with earnings of $7.70 per

passenger, there is not much buffer. That

is why airlines must remain vigilant against

any cost increases, including from

taxes, labour and infrastructure.”

American Airlines, the world’s largest airline, posted a $1.04 billion

net profit in the first half of 2017. This shows the North American

market’s strength; nearly half of the profits made by the world’s

airlines this year will be generated by airlines based there.

Matthieu Douhaire/AirTeamImages