The International Air Transport Association (IATA) today published its January 2018 Airline Business Confidence Survey.
When surveyed in early-January, 75% of airline CFOs and Heads of Cargo indicated an improvement in year-on-year profitability in Q4 2017 compared with the same period in 2016. The majority (56%) reported that they expect their profitability levels to improve further over the coming 12 months.
This positive outlook is being supported by robust demand growth on both the passenger and freight sides of the business; 86% of respondents expect passenger volumes to rise over the year ahead – the highest proportion in more than a decade.
38% of respondents reported an increase in input costs in Q4 2017 compared to the same period a year ago, with many singling out the impact of higher fuel prices. The upward trend in oil prices is expected to continue to impact airline costs in the year ahead.
That said, partly as a result of the strength of the economic backdrop and current demand/supply balances, our respondents appear confident about the outlook for both passenger and freight yields over the year ahead; both the forward-looking weighted-averages scores are currently above the 50-mark.
The outlook for industry employment over the next 12 months remains positive, with 37% of respondents expecting to increase employment and a similar proportion expecting to maintain current levels.
PROFITABILITY OUTLOOK
The results of our latest survey of airline CFOs and Heads of Cargo, conducted in early-January, indicate a robust finish to 2017 for industry financial performance. 75% of our respondents reported that profitability increased in annual terms in Q4. This was below the 80% seen in the previous survey, but was still more than double the proportion of Q1 2017, when the squeeze on industry profit margins looks to have peaked. All told, the backward-looking weighted average score remained at an elevated level.
The proportion of respondents who expect profits to fall over the next 12 months rose to its highest level since Q2 2017, with many citing an expected impact of higher oil prices on profitability. Nonetheless, this was offset by a larger increase in the share expecting profitability to increase over the period. Notwithstanding some volatility during 2017, the forward-looking score has trended upwards since falling below the 50-mark in Q2 2016.
DEMAND GROWTH
On the passenger side, the January survey results were consistent with other signs that demand is carrying momentum into 2018. 81% of respondents reported an increase in year-on-year demand in Q4 2017. With the proportion of respondents reporting a decline in passenger volumes remaining unchanged at a two-year low (9.5%), the backward-looking weighted-average score remained elevated.
86% of respondents reported that they expect passenger volumes to rise further over the year ahead – the highest proportion in more than a decade. With less than 5% expecting a fall in demand, the forward-looking weighted-average score rose to its highest level since Q4 2013.
The backward and forward-looking questions for freight demand yielded exactly the same results. The 63% of respondents who reported a year-on-year rise in demand over the previous three months was the highest share for this measure since Q2 2011. Meanwhile, the proportion who reported a decline (7%) was the lowest in more than seven years. This combination lifted the backward-looking weighted-average score to its highest level since the post-crisis demand rebound in 2010/11.
Meanwhile, the forward-looking score also increased, to its highest level in three years. A number of respondents noted that the supply/demand balance is expected to remain favorable over the year ahead.
