Airline industry profits will come in lower than forecast this year as passenger numbers and cargo volumes are held back by slowing economic growth and global trade wars, the International Air Transport Association said.
With less than a month left in 2019, the trade body lowered its annual profit estimate to $25.9 billion — $2.1 billion less than it predicted in June, and almost $10 billion down from forecasts published a year ago. Geopolitical tensions, social unrest and uncertainty around Brexit are contributing to tougher business conditions, IATA said.
The new figure equates to a 5% decline from earnings last year, which were restated by IATA on Wednesday. The group expects an improvement in 2020, but there are big caveats: Concern about carbon emissions is spurring taxes on jet fuel and may already be eating into demand for air travel in Europe. An uncertain return for the grounded Boeing 737 Max further clouds the outlook.
“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,” IATA chief executive officer Alexandre de Juniac said.
While the Max was idled in March after two deadly crashes, Boeing has been busy making more. Hundreds of completed planes remain in storage while the US company waits for regulators to clear the narrow-body workhorse to fly again.
One worry is that a glut of new aircraft will expand airline capacity too fast, holding back fares and denting the forecast rebound in earnings, which IATA now pegs at $29.3 billion for the coming year.
The emerging phenomenon of flight-shaming is another challenge for the industry, with changing passenger habits and a possible tax on airline fuel in Europe threatening industry profit.
De Juniac reiterated calls for investment in sustainable fuel and other steps to cut CO2 emissions, while keeping up an industry drumbeat against taxation. Still, he acknowledged that airlines must be more proactive in communicating to the public and to governments about the measures they are taking.
“People are adjusting their personal habits to manage their individual carbon footprints,” De Juniac said at an event in Geneva.
The head of SAS AB, Scandinavia’s biggest network airline, said separately in an interview that the European Union’s planned introduction of the kerosene tax under its ‘‘Green Deal’’ could leave carriers at a disadvantage to rivals from outside the bloc.
“This is a global industry, we meet competitors who are in all parts of the world that can fly here,” CEO Rickard Gustafson said at Stockholm’s Arlanda airport. “We can’t have other costs that the others do not have.”
Airlines are expected to suffer an overall loss this year in Africa, the Middle East and also Latin America, where growth at four carriers has been limited by the Max grounding. North America should be easily the most profitable region, accounting for 65% of industry earnings, according to IATA.
Latin America should end losses next year as regional economies strengthen, according to the trade group, which represents 290 airlines. At the same time, things could get tougher in North America, with earnings down as fares and margins are hit by slowing growth and a surge in jet deliveries, led by the Max.
European profits should improve in 2020 though the positive aggregate performance led by a handful of dominant carriers “hides a long list of airlines just breaking even or making losses” following a spate of bankruptcies in recent years, IATA said. De Juniac said on Bloomberg TV that further failures can’t be excluded.
Cargo revenues will slip for a third year in 2020, the forecast suggests, and while Asia-Pacific, the biggest region for airborne exports, should show an upturn in earnings, the industry lobby said it’s assuming there’ll be no reversal of tariffs, with trade wars still simmering.
Britain’s exit from the EU may also be problematic for the freight sector, creating increased paperwork and potentially weighing on UK shipments as the economy comes under pressure, according to IATA chief economist Brian Pearce.
© 2019 Bloomberg