Wednesday, December 1, 2021
HomeAviationHigher costs dampen As-Pac airlines’ 2018 earnings

Higher costs dampen As-Pac airlines’ 2018 earnings

Combined net earnings of Asia-Pacific airlines declined by nearly half in 2018 to US$4.7 billion, from the $9.6 billion recorded in the previous year, figures released by the Association of Asia Pacific Airlines (AAPA) revealed.

Continued expansion in the global economy underpinned further growth in air passenger and air cargo markets, but airlines faced an increasingly challenging operating environment marked by significantly higher jet fuel prices, adverse currency movements and rising pressures on non-fuel cost items.

Overall, international passenger traffic grew by a robust 6.9% in 2018, stimulated by rising incomes, further expansion of airline networks and widespread availability of competitive airfares.

International air cargo traffic slowed to a 2.2% increase for the year, as uncertainties stemming from unresolved international trade disputes adversely affected business confidence and levels of export activity.

Collectively, the region’s carriers achieved operating revenues totaling $204.7 billion in 2018, a 10.4% increase compared to the $185.4 billion registered in the previous year. Passenger revenue rose by 10.4% to $159.0 billion, driven by the solid growth in passenger demand and slightly higher average air fares. Passenger yields recorded a 3.1% rise to 8.1 cents per revenue passenger kilometer after several years of decline.

Despite slower growth in air cargo demand, cargo revenue increased significantly, by 11.5% to $21.2 billion, with an 8.9% increase in cargo yields to 27.1 cents per freight tonne kilometer.

Meanwhile, operating expenses grew by 12.5% to an aggregate total of $194.6 billion in 2018. This was driven by a significant 27.5% rise in fuel costs to $54.5 billion, in tandem with the 29.8% jump in global jet fuel prices to an average $85 per barrel. Consequently, the share of fuel expenditure as a percentage of total operating expenses rose by 3.3 percentage points to 28.0%. Non-fuel expenditure increased by 7.6% to $140.1 billion, driven by higher staff costs as well as landing fees and en-route charges.

Andrew Herdman, AAPA director general, said, “Asian airlines are operating in highly competitive markets, and were not able to pass on the full cost impact of significantly higher fuel prices we saw in 2018. Consequently, overall operating margins narrowed to 4.9% for the year, from 6.7% in 2017. After extraordinary items, which included foreign exchange losses for a number of carriers, aggregate net earnings fell to US$4.7 billion in 2018. As an indication of the highly competitive nature of the airline business, this represents an average profit level of just under US$5 per passenger flown.”

Looking ahead, Herdman said, “Asia Pacific airlines continue to face significant headwinds in the form of persistent cost pressures, stiff competition as well as further volatility in oil and currency markets. Whilst air passenger markets remain relatively resilient, the weak sentiment surrounding air cargo markets is a warning signal that trade disputes are doing real damage to the economy and could further undermine global growth prospects going forward.”

Photo: Myself (Adrian Pingstone)

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