Fuel costs to trim record airline profits

Rising jet fuel prices will eat into the world's airline profits, but the industry is still on track for a record year, an airline lobby group forecast Wednesday.

The International Air Transport Association, which represents 240 airlines, forecasts that the global airline industry will earn a profit of $18.7 billion in 2014. That's a record. But the figure is $1 billion lower than its previous profit estimate in December.

North American airlines are expected to be the industry's biggest profit driver, with record 2014 profits of $8.6 billion. That's more than double the previous most profitable year — 2010's $4.2 billion.

The Geneva-based group now forecasts that fuel will average $108 US a barrel, up $3.50 from previous projections.

That will add $3 billion to the industry's fuel bill this year — a figure that will be partially offset by stronger demand in passenger and cargo traffic as the global economy recovers.

"“In general, the outlook is positive," said IATA director general Tony Tyler in a statement. "The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geopolitical instability."

But he said industry returns remain at an "unsatisfactory level with a net profit margin of just 2.5 per cent." 

Tyler credits industry consolidation and joint ventures with helping to improve the bottom line.

Industry revenues are expected to total $745 billion this year, with average profit per passenger of $5.65.

Besides rising fuel costs, the airline industry also points to such geopolitical risks as the decision by Venezuela to prevent airlines from taking profits out of the country and the crisis in Ukraine.

The disappearance of Malaysia Airlines Flight MH370 over southeast Asia is, at this point, another unknown.   

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