IATA expects trade tensions to hit airline profit outlook

PARIS (Reuters) – Global airlines body International Air Transport Association (IATA) expects increasing trade tensions and higher costs will mean a cut in 2019 industry profit forecasts.

The IATA trimmed its 2019 global airline industry profit forecast to $35.5 billion in December, from $38 billion, after it hit $32.3 billion in 2018.

Alexandre de Juniac, IATA director general, gave a strong steer on Friday that the industry group would trim its widely watched forecast again when it meets in Seoul next month.

"We are a bit pessimistic," he told a meeting of aerospace industry officials in Paris.

"I think we should be more cautious," he added, referring to probable changes to the forecasts published in December. He declined to give specifics ahead of the June 2 publication.

"The figures will be in the black but will be more difficult," he told a meeting of Usaire, an association of US and European aerospace companies.

Trade tensions are already hurting cargo demand and passenger demand is sure to be affected too, he said.

Air cargo – a bellwether for the wider economy – transports over $6 trillion worth of goods, accounting for 35% of world trade by value, according to IATA.

Air freight traffic fell 2% in the first quarter of 2019. Although earlier rounds of tariffs affected items like steel that are hauled by sea, airlines are worried that future tariffs could include smart phones and computers that go by air.

This points to a "very tough year" for air freight, but reasonable though slower GDP growth should keep passenger traffic growing only a little below trend, IATA said on Friday.

"Among the reasons why cargo is declining and we see some slowdown in passenger traffic are probably the consequences of trade disputes and protectionist measures in various parts of the world," De Juniac said.

As well as escalating trade tensions, notably between the United States and China, airlines are also beginning to acknowledge concerns that the industry has reached the top of its business cycle after a longer than usual expansion.