Australia’s Sydney International Airport. Picture: REUTERS
Australia’s Sydney International Airport. Picture: REUTERS

Sydney — Governments must urgently tackle a capacity crisis facing airports as demand for international travel grows, but they should be cautious about private sector involvement, the International Air Transport Association (Iata) warned on Monday.

Iata has also cut its profit target for the global aviation market for 2018, despite the expected increase in passenger numbers.

Passenger levels projected to nearly double to 7.8-billion by 2036, infrastructure such as airports and air traffic control systems were not keeping pace, the airline industry group said.

Major airports have sought to address the crisis by managing slots — giving airlines specific operating rights at particular times.

But there was still a need for new airports, Iata director-general and CEO Alexandre de Juniac said at the body’s annual meeting in Sydney.

“We are in a capacity crisis. And we don’t see the required airport infrastructure investment to solve it,” he said, adding that cash-strapped governments were increasingly turning to private firms to increase airport capacity.

But he cautioned against privatised airports, warning that they have “not lived up to airline expectations”, with many carriers having “far too many bitter experiences”.

“Travellers also sense the problem. According to [global rating system] Skytrax, five of the top six traveller-preferred airports are public,” he said.

“Privatised airports are definitely more expensive. But there is little difference in efficiency or investment levels compared to airports in public hands.”

Iata on Monday projected global air passenger traffic to rise by 6.5% this year to 4.36-billion, after increases of 7.0% and 7.3% in 2016 and 2017 respectively.

The body, which represents 280 airlines, will consider a resolution on the privatisation of airport infrastructure on Tuesday that calls on governments to factor in long-term economic and social benefits when commissioning new terminals.

The resolution will also call for better regulation governing privatised airports and protecting consumer interests.

Iata predicted lower returns for airlines than six months ago as rising fuel prices and labour costs eat into the industry.

Net income for 2018 was likely to total $33.8bn, 12% lower than a December forecast for $38.4bn, Iata said. The new forecast compares with a record high of $38bn airlines made last year, which was boosted by special accounting such as one-off tax credits, Iata said.

“At long last, normal profits are becoming normal for airlines,” De Juniac said in the statement referring to continued profits for the ninth consecutive year.

“This enables airlines to fund growth, expand employment, strengthen balance sheets and reward our investors.”

North American airlines, with a net profit of $15bn, would contribute the most to the industry’s earnings, apart from posting the highest margins and return on capital, Iata said. Apart from Africa, all other regions will remain profitable. Carriers in Asia-Pacific, the fastest-growing region in terms of passengers, will earn $8.2bn, just behind European airlines’ $8.6bn.

At long last, normal profits are becoming normal for airlines
Iata director-general and CEO Alexandre de Juniac

The upturn in interest rates was also affecting profit, the airline group said. Growing uncertainty in global affairs, including a protectionist agenda by some political forces, US withdrawal from the Iran nuclear deal and lack of clarity on the impact of Brexit were risks to the industry’s outlook, Iata said.

While fuel costs top the list of expenses for most airlines, it is wages for US carriers. Brent crude prices have risen 55% in the past year and touched a three-and-a-half-year high in May. It was inevitable that airlines would have to pass some of the fuel burden onto passengers, De Juniac said. Iata represents about 280 carriers worldwide, or 83% of total air traffic.

American Airlines Group said the carrier was managing to soak up rising fuel costs for the moment, but it might have to raise prices if those levels became “the new normal”.

Qantas Airways said its domestic business “can continue to digest” higher fuel prices. IndiGo, India’s biggest airline, said last week it was reintroducing a fuel surcharge, citing the rise in oil prices.

AFP, Bloomberg

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