The International Air Transport Association (IATA) has downgraded its 2019 outlook for the global air transport industry to $28 billion profit from the previous forecast of $35.5 billion profit.
The business environment for airlines has deteriorated with rising fuel prices and a substantial weakening of world trade. In 2019, overall costs are expected to grow by 7.4%, outpacing a 6.5% rise in revenues. As a result, net margins are expected to be squeezed to 3.2% (from 3.7% in 2018).
After an exceptional performance in 2017 (+9.7% growth), cargo demand growth slowed to 3.4% in 2018. It is anticipated to be flat in 2019 with cargo volumes of 63.1 million tonnes (63.3 million tonnes in 2018) because of the impact of higher tariffs on trade. Cargo yields are expected to be flat in 2019 after a 12.3% improvement in 2018, as cargo load factors fall further, and supply-demand conditions weaken.
“This year will be the tenth consecutive year in the black for the airline industry. But margins are being squeezed by rising costs right across the board—including labour, fuel, and infrastructure. Stiff competition among airlines keeps yields from rising. The weakening of global trade is likely to continue as the US-China trade war intensifies. This primarily impacts the cargo business, but passenger traffic could also be impacted as tensions rise. Airlines will still turn a profit this year, but there is no easy money to be made,” said Alexandre de Juniac, IATA’s Director General and CEO.
Juniac seems positive in his outlook as airlines have broken the boom-and-bust cycle, he further added, “A downturn in the trading environment no longer plunges the industry into a deep crisis. But under current circumstances, the great achievement of the industry—creating value for investors with normal levels of profitability is at risk.”
Asia-Pacific market facing the heat
Asia-Pacific airlines will deliver a net profit of $6.0 billion (down from $7.7 billion in 2018). That represents a net profit per passenger of $3.51 and a net margin of 2.3%. The region is showing very diverse performance. Accounting for about 40% of global air cargo traffic makes the region the most exposed to weakness in world trade, and that, combined with higher fuel costs, is squeezing the regions’ profits.