$80 oil to 'bite hard' into airline profits
Almost a decade of good times may be over for airlines worldwide.
The rising cost of fuel will eat into profits "significantly" from next year, Alexandre de Juniac, CEO of the International Air Transport Association, said in Sydney yesterday.
"We are probably at the peak of the cycle," he said, addressing media before IATA's annual meeting next week. "Next year will be less positive." Airlines will still report "solid profits" for 2018, although not at the level IATA previously expected, he said. The body in December forecast total net profits would be $38.4bn this year, up from $34.5bn in 2017, marking a ninth straight year of profits. Updated numbers will be released on Monday, he said.
If oil prices continue past $80 a barrel, "it will bite hard," de Juniac said. Brent crude is currently at a more than three-year high of about $77 a barrel.
European airlines have ramped up their hedging in the face of rising prices.
Swedish carrier SAS said on Wednesday that its ratio of hedged fuel increased by 10 points to 83pc of needs for the three months ending in July, and to 91pc for the three months through October. That's up from 39pc it reported in February for that quarter.
One airline holding its current position for now is Norwegian Air Shuttle. It said this week its hedging remains at 27pc, as reported at the end of March. Norwegian is "reluctant" to hedge above $80 per barrel oil, said Tore Ostby, executive in charge of strategic development.
IATA represents about 280 carriers worldwide, or 83pc of total air traffic. It's inevitable that airlines will have to pass some of the fuel burden onto passengers, de Juniac said. (Bloomberg)