IATA Chief Economist says rising costs and unstable political landscape could curtail profitability

IATA Chief Economist Brian Pearce is optimistic the airline industry can continue to flourish financially, but highlighted risks that could curtail profitability.

The airline industry is expected to post earnings of $31 billion in 2017, on total revenues of $743 billion.

We’ve seen costs accelerate quite sharply. This was initially from the rise in fuel prices, but also in labor costs

This comes against the backdrop of a strong global economy.

Speaking at the World Financial Symposium in Dublin on 27 September, Pearce said: “We’ve got booming markets. If you combine the cargo and passenger businesses, we’re going to see about 7% or 8% growth this year, perhaps even higher.”

This is compared to a 20-year growth rate of 5%. But Pearce warned that although profit margins remain at historic highs-and almost double their level of five years ago-they are being squeezed as costs rise.

“We’re probably past the peak [margin rate],” says Pearce. “Margins remain high, but the best improvement was in 2016.

“We’ve seen costs accelerate quite sharply though. This was initially from the rise in fuel prices, but also in labor costs too. The increase in infrastructure costs is also providing a challenge. Cost control is going to be very important.”

Pearce also highlighted the fact that trade levels have not recovered since the global financial crisis.

Over the last six months is we haven’t seen the threats in terms of an outright trade war in terms of tariffs happen

He says this, coupled with an unstable political landscape, could threaten profitability.

“The world is very different now in terms of cross-border trade and in terms of the openness of borders, than before the global financial crisis,” he said

“The good news is over the last six months is we haven’t seen the threats in terms of an outright trade war in terms of tariffs happen. That’s been averted, at least so far.

“We’re an industry that flourishes with open borders. And I think we need to make sure our governments are aware of the ability we have as an industry to bring economic growth and support jobs.”

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