Jul 27, 2018 - Jul 2017. Jan 2018. Jul 2018. Sources: IATA, Platts. Weighted score (50=no change). % year-on-year. Jet f
IATA ECONOMICS’ CHART OF THE WEEK 27 JULY 2018 HIGHER FUEL COSTS DRIVE UPWARD PRESSURE ON AIRLINE COSTS IN Q2
Weighted score (50=no change) 100
% year-on-year 100% Input prices - past three months (LHS)
90
80%
80
60%
70
40%
Jet fuel prices (lagged 1q, RHS)
60
20%
50 0%
40
-20%
30
-40%
10
-60%
0
-80%
Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018
20
Sources: IATA, Platts One of the clearest messages from our latest quarterly survey of airline CFOs and Heads of cargo was the upward pressure on input costs. 78% of respondents reported an increase in unit input costs in Q2 2018 relative to the same period a year ago – the highest proportion in seven years – which lifted the weighted-average score to its highest level since July 2011. As this week’s chart shows, the upward pressure on costs has been driven in large part by higher jet fuel prices (although increased labor costs have also been a factor in a number of cases). Jet fuel prices have trended upwards since 2017, driven by a combination of a gradual reduction in oil inventories amid robust demand and tighter supply conditions, as well as geopolitical developments. Managing cost pressures is likely to remain the key challenge for airlines in the near term. Profitability in the airline industry increased in year-on-year terms in Q1 2018, but the ability of airlines to sustain financial performance in the face of rising costs will depend on supply and demand conditions for air travel, which itself will depend in large part on the strength of the global economy. Business confidence surveys suggest that global economic growth has remained robust into mid-2018. However, forecasters including the IMF note that the pace of growth may have already peaked in some major economies, and warn of the rising risks to the outlook, particularly from trade tensions. Terms and Conditions for the use of this IATA Economics Report and its contents can be found here: www.iata.org/economics-terms By using this IATA Economics Report and its contents in any manner, you agree that the IATA Economics Report Terms and Conditions apply to you and agree to abide by them. If you do not accept these Terms and Conditions, do not use this report.
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