Airlines recorded decrease in profits due to fuel prices, unfavourable forex in 2018 – report

Captain Muhtar Usman, Director General, Nigerian Civil Aviation Authority

Airlines have disclosed that they recorded a decrease in their profits in 2018 compared with the same period a year ago.

Airline Chief Financing Officers and Heads of Cargo surveyed by the International Air Transport Association (IATA) attributed this to fuel prices and unfavourable foreign exchange movements which lasted till fourth quarter of the year.

This development was contained in an Economics Report released by the International Air Transport Association (IATA) on January 24, 2019.

The airlines believe that in the next twelve months, they expect to see an improvement in profitability, indicating that confidence has risen since the previous survey in October.

According to the report, most of the respondents expected passenger and freight demand growth has been strong in the past three months and is expected to remain so in the year ahead, despite risks of slowing global economic growth and concerns over a possible trade war.

‘’The results of our latest survey of airline CFOs and Heads of Cargo suggest that the squeeze on profitability, evident through the first three quarters of 2018, continued in fourth quarter. 45% of respondents saw a decrease in their profitability in Q4 2018 compared with the same period in 2017. Responses suggest the profit squeeze is primarily coming from cost pressures and, in some cases, tentative signs of faltering demand growth.

‘’However, the proportion of respondents who believe that profits will improve over the next year bounced back in the latest survey, to 55%, a strong 15 percentage points above the Q3 outcome. Respondents mentioned improving business conditions and better management as sources of optimism.

‘’On the passenger side, the results from the January survey point to a rebound in demand growth in Q4, with 70% of respondents reporting increasing passenger volumes compared to a year ago. This was up from a short-lived dip to 65% last quarter. Consequently, the weighted score trended back to 78, slightly above the 5-year average,’’ the report stated.

In the area of employment, the report stated that airlines maintained that there was an increase in the size of their workforce in fourth quarter of 2018 compared with the same period a year ago, the highest proportion in more than a decade (since July 2007).

‘’The majority (55%) of survey respondents cited an increase in the size of their workforce in Q4 2018 compared with the same period a year ago, the highest proportion in more than a decade (since July 2007). This is the fourth consecutive quarterly increase in the proportion and as a result the backward-looking weighted score continued trending upwards, reaching a score of 67 – a level not seen since the global financial crisis.

‘’Importantly, the positive employment story is expected to continue over the year ahead, with the same proportion of respondents (55%) planning to increase their workforce further over the coming 12 months. Just 7% expect to shrink the size of their workforce – a record low outcome since the launch of the Business Confidence Survey in 2006. Consequently, the forward-looking weighted score lifted further, to 74,’’ noted IATA.

 

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