For the third year in a row, airlines are expected to post returns above the cost of capital

The latest IATA forecast anticipates a $31.4 billion profit for the airline industry on revenues of $743 billion.

Underlying this performance is a strong demand environment. Global GDP growth in 2017 is predicted to reach 2.9%, the highest since 2011.

Importantly, demand is keeping slightly ahead of capacity increase

Passenger demand for air travel is expected to grow 7.4%. This equates to an additional 275 million passengers, bringing the forecast total number of passengers in 2017 to 4.1 billion.

Importantly, demand is keeping slightly ahead of capacity increases, pushing the average load factor to 80.6% and boosting unit revenues.

The cargo sector will post equally robust figures, growing 7.5%. The total cargo carried is expected to reach 58.2 million tonnes.

Nevertheless, there are reasons to be cautious.

Earnings work out at $7.69 per passenger, meaning there is not much buffer to shocks. And cost increases in fuel, labor, and maintenance accelerated in the first quarter, 2017.

In total, industry expenses will hit $687 billion this year, a $44 billion increase on 2016. Revenue increased just $38 billion.

The benefits of cheaper fuel prices for airlines are coming to an end while unit labor costs are expected to rise 3%.

While revenues are increasing, earnings are being squeezed by rising fuel, labor, and maintenance expenses

Industry suppliers are also exerting pressure for an increased share of the industry’s improved financial performance.

“This will be another solid year of performance for the airline industry,” said Alexandre de Juniac, IATA’s Director General and CEO. “Demand for both cargo and passenger business is stronger than expected.

"While revenues are increasing, earnings are being squeezed by rising fuel, labor, and maintenance expenses. Airlines are still well in the black and delivering earnings above their cost of capital. But, compared with last year, there is a dip in profitability.”

As ever, there are major variations in regional performance. Almost half the industry profit ($15.4 billion) is being generated by North American carriers. European and Asia-Pacific airlines will each add $7.4 billion to the industry total.

Latin American and Middle East carriers will post modest profits, of $800 million and $400 million respectively, while African airlines are expected to be $100 million in the red.

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