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May 24, 2024
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US/China trade tensions, weaking worldwide trade and higher (fuel) costs will eat into airlines’ profits in 2019, reducing them to $28 billion from $35.5 billion forecasted last December, the world’s airlines’ expect. The latest outlook has been announced on June 2 in Seoul during the Internationsl Air Transport Association (IATA) 75th annual general meeting.

“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 labor, fuel, and infrastructure”, Director-General and CEO Alexandre de Juniac remarked. “Stiff competition among airlines keeps yields from rising. 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.”

Costs are expected to grow by 7.4 percent, outpacing the 6.5 percent revenue growth. Net margins will be 3.2 percent lower. Profit per passenger will on average drop from $6.85 last year to $6.12 this year. Return on investment of airlines will drop from 7.9 to 7.4 percent.

While the US/China trade dispute will hurt global traffic, the US and North America will be the least affected region. Profits will even grow from $14.5bln to $15bln post tax or $14.77 per passenger, with net margins of 5.5 percent. Consolidation will help to sustain profits as well as load factors of 65+ percent.

Europe will see a drop in profits from $ 9.4 to $8.1bln, or $6.75 per passenger. Load factors are the highest here at 70.2 percent. IATA is worried about the continued ?inefficiencies and delays caused by air traffic management operators, expecting delays to cummulate to 19 million minutes this year. In February, Airlines 4 Europe expressed similar concerns.

Profits in Asia Pacific will be down from $7.7 to $6bln, or $3.51 per passenger. It is here that the trade dispute will be felt the hardest, with cargo seeing a reduction after solid growth in 2017-early 2018.

Latin America will see a $-0.5bln loss change into a $0.2bln profit, but only at a $0.50 profit per passenger. Driving this region is Brazil’s economy growth.
Africa continues its weak position with a loss of $0.1bln, identical to last year. While slowly improving, airlines have difficulty in getting their load factors up.

The Middle East region is showing the worst results, with losses increasing from $1bln to $1.1 bln or $-5.01 per passenger. IATA is seeing a significant slowdown in capacity as a result of a worsening business environment.

IATA expects fuel prices to be on average $70 per barrel of Brent oil, up 27.5 percent from 2017. Non-fuel costs will increase from $39.2 to 39.5 cents.

In all, IATA still expects worldwide traffic to rise from 4.4 to 4.6bln this year, with yield ls flat on 6.5 percent higher combined revenues of $865bln.
Cargo at 63.1 million tonnes will see no growth.

At the IATA meeting Lufthansa CEO Carsten Spohr was elected chairman of the Board of Governors for the next year, succeeding Qatar Airways CEO Akbar al Baker.

The AGM passed five resolutions. The first calls on governments to implement the ICAO-agreed Corsia emission reduction scheme, which becomes effective on a voluntary basis from 2020. Airlines are urged to implement all measures available to them to reduce emissions as well as using sustainable aviation fuels.
The second resolution asks for a worldwide harmonized slot allocation system at airports that is non-discriminatory but transparant.
The airlines also agreed to use Radio Frequency Identification (RFID) on all bagage for easier tracking, in order to reduce the amount of lost bagage.
A fourth resolution calls on airlines, airports and authorities to implement one system for identification of passengers at airports. The final resolution addresses the position of passengers with disabilties to improve their travel experience.

author avatar
Richard Schuurman
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016. Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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