Trade turbulence pushes airline profits lower
Geneva, Switzerland - Global trade tensions have sent airline profits into a descent, the industry’s trade association said on Wednesday, and while profitability is expected to rebound next year it will unlikely match the level hit in 2018.
The global airline industry is expected to earn US$25.9bn in 2019, down 14 per cent from the US$30bn in net profits it recorded last year.
The figure is also considerably lower than the US$28bn in net profits that International Air Transport Association (IATA) forecast for the industry in June, and more than a quarter less than its original 2019 forecast last December.
“Slowing economic growth, trade wars, geopolitical tensions and social unrest, plus continuing uncertainty over Brexit all came together to create a tougher than anticipated business environment for airlines,” said IATA chief Alexandre de Juniac.
Restructuring and cost-cutting nevertheless helped the airline industry extend its streak of profitability to ten years, and 2019 should prove to be the bottom of the economic cycle, he added.
IATA expects airlines’ net profits to rise to US$29.3bn in 2020, helped by an expected rebound in global trade growth and dip in fuel prices.
Demand for air travel is also expected to grow by 4.1 per cent, down marginally from 2019, and below historical trends.
Meanwhile airline capacity is forecast to accelerate to 4.7 per cent, up from 3.5 per cent this year.
“The big question for 2020 is how capacity will develop, particularly when, as expected, the grounded 737 Max aircraft return to service and delayed deliveries arrive,” de Juniac noted.
Airlines have ordered massive numbers of new, more fuel-efficient aircraft in recent years, but the competitive pressures have remained high and a number of operators have gone bust this year.
The disruption caused by the grounding of Boeing’s 737 Max over a technical problem has added financial pressure on some airlines, and many more face higher costs as Airbus and Boeing step up delivery of new aircraft.