* 2017 profits seen at $29.8 bln, down 16 pct from 2016
* 2016 profits forecast cut to $35.6 bln from $39.4
* Industry still earning cost of capital in 2017
* Rising labour costs, fuel costs to bite in 2017
(Adds details on return on capital, labour)
By Victoria Bryan
GENEVA, Dec 8 Airlines will see profits fall for
the first time in six years in 2017, after peaking this year, as
rising oil and labour costs bite and demand slows, the
International Air Transport Association said on Thursday.
IATA, representing some 265 airlines accounting for 83
percent of global air traffic, said it expects the industry's
net profits to fall 16 percent to $29.8 billion next year,
mainly due to rising oil prices, and with North American
carriers accounting for some $18.1 billion of the total.
It also cut its 2016 forecast for net profits to $35.6
billion, still a record high but down from a previous prediction
for $39.4 billion.
Despite falling to 7.9 percent next year from 9.4 percent,
the industry's return on capital is expected to exceed the cost
of capital in 2017 for the third year in a row.
Collectively, the first time the industry managed to
generate an above cost-of-capital return was in 2015.
IATA chief economist Brian Pearce said airlines had
recognised the need to provide returns for investors, with moves
to use planes more frequently and with more seats filled helping
to drive profitability.
"It's no longer about market share, but how do we use our
assets, deliver a good return on capital. It's something that
will stick with the industry and should underpin the industry's
financials," he said.
After a strong couple of years, airlines have found the
going tough in the latter half of 2016. Attacks on airports and
popular tourist destinations in North Africa and Europe have
dampened travel demand for some routes.
A rush to take advantage of low oil prices to offer more
seats and gain customers has also put ticket prices under
pressure and threatened profit margins, especially as the price
of oil is expected to rise again.
The average return fare is due to fall almost 11 percent to
$363 in 2016 from $407 the previous year, while fares are
expected to fall a further 3 percent in 2017 to $351, IATA said.
Adding to headwinds, labour costs are also creeping up and
are expected to rise 1.3 percent in 2017, while revenues per
unit of capacity will remain under pressure, Pearce said.
Delta Air Lines last week lowered its profit
forecast after agreeing a 30 percent pay rise for pilots by
2019, following a 19 percent rise for United Continental earlier
this year. Meanwhile in Europe Lufthansa pilots have been
striking over pay demands.
(Reporting by Victoria Bryan; Editing by Maria Sheahan, Greg