2018 Aviation Outlook. 2017 was aviation’s sweetest spot ever. Oil prices could spoil the party

The airline industry has a turbulent past. Buffeted by uncontrollable external input costs and regular assaults on traffic demand, it has rarely achieved even modest profitability. Where profitability has occurred, it was usually at the expense of traffic growth, inhibited by protectionist regulation.

Yet, over the past two or three years, almost every facet of the industry has excelled. Profits are at record levels, load factors are high, yet traffic growth has grown off the radar. The year 2017 has arguably been the sweetest spot for combined airline profitability and traffic growth ever experienced.

Basking in globally synchronised, if modest, economic growth, with historically low fuel prices and interest rates, airlines have lowered fares, in the process adding extra stimulus to passenger traffic growth.

Now the core ingredients for the future of this phenomenon may be at risk. Rising oil costs will stall fare decreases, dulling demand in what has become a highly price sensitive market. And interest rates too are gradually increasing.

If, despite growing political uncertainty, global economies continue along their current track, any descent from this unique sweet spot may be softened. Much will depend on how far oil prices rise.