Rising oil prices to hit Asian airline profits in 2017

Airlines at Bali's Ngurah Rai International Airport in Denpasar
Airlines at Bali’s Ngurah Rai International Airport in Denpasar

Airlines in the Asia Pacific region are expected to see diminishing returns next year, as rising oil prices impact profits.

According to the latest profit forecast from IATA, the region’s carriers will generate a combined net profit of US$6.3 billion in 2017, down from the US$7.3bn expected in 2016. This will represent a net margin of just 2.9%, and the average profit per passenger is forecast to be just US$4.44.

The Asia Pacific region will account for just 21% of global profits in 2017, despite the fact that it handles the most traffic. This is because global profitability is being driven North American carriers, which are expected to generate US$18.1bn next year, or 61% of the global total.

All regions are expected to see declining profits, due to factors including intense competition and rising fuel prices. In the Middle East for example, airline profits are expected to plunge 67% from US$900,000 in 2016 to US$300,000 in 2017, with an average profit per passenger of just US$1.56.

Alexandre de Juniac
Alexandre de Juniac

The rise in oil prices has been triggered by the recent decision by OPEC to cut production in a bid to improve its own fortunes. This has a huge impact on airlines; it directly affects the cost of jet fuel, which can account for more than a third of an airline’s operating costs.

But despite these declining figures, Alexandre de Juniac, IATA’s director general & CEO, said the industry was in good shape.

“Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning US$29.8 billion,” de Juniac said. “That’s a very soft landing and safely in profitable territory. These three years are the best performance in the industry’s history, irrespective of the many uncertainties we face.”

Seat capacity offered by Asia Pacific’s airlines is forecast to grow by 7.6% in 2017, ahead of an expected 7.0% increase in demand. This will add to the already intense competition in the region, where multiple airlines compete on many routes. The world’s 10 busiest point-to-point air routes, in terms of passenger traffic, are all within the Asia Pacific region.

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