IATA lowers aviation sector's 2019 profit outlook

A plane lands at LAX airport

A plane lands at LAX airport

-China trade war and high fuel prices will wipe 7.5 billion USA dollars off expected airline profits during 2019, the industry body has said.

Iata's lower profit forecast is based on an oil price assumption of about $70 per barrel compared to an assumption of $65 in the December, the organisation's chief economist, Brian Pearce, said at a press briefing in Seoul. Airlines there are going through a process of adjustment and announced schedules point to a substantial slowdown in capacity growth in 2019. The IATA expects global spend on tourism enabled by air transportation to increase by 7.8 percent this year to $909 billion, and forecast that almost 1,800 new aircraft will be delivered to airlines in 2019, expanding the global fleet to about 30,700 and helping improve fuel efficiency by 1.7 percent. Each passenger carried is expected to cost the carriers $1.54, leading to a -1.0 per cent net margin.

Buoyed by the strong tourism industry overall, which was fostered by an extended Visa On Arrival fee waiver by the government for citizens of 20 countries and one territory, Thai AirAsia reckoned it is well-positioned to achieve both growth and service targets.

The revised outlook is also lower than the net profit estimate for 2018, which IATA had pegged at $30 billion. Accounting for about 40% of global air cargo traffic, the region is the most exposed to weakness in world trade, and that, combined with higher fuel costs, is squeezing the regions' profits. As a result, net margins are expected to be squeezed to 3.2% (from 3.7% in 2018). "Profit per passenger will similarly decline to $6.12 (from $6.85 in 2018)", it said.

"Airlines will still turn a profit this year, but there is no easy money to be made", he stressed.

Mentioning the rising costs of labour, fuel and infrastructure across the board, International Air Transport Association added that the worsening trade war between the two world's largest economies was not helpful for the industry.

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"That probably won't keep pace with rising costs this year which why we have a further squeeze on profitability".

Meanwhile, intensifying global trade tensions are a major downside risk for the industry as well.

"Any rift between regulators is not in anyone's interest", IATA Director General Alexandre de Juniac told an annual meeting of the association in Seoul. "Airlines will still create value for investors in 2019 with above cost-of-capital returns, but only just". While this still exceeds the average cost of capital (estimated at 7.3 per cent), the buffer is extremely thin. "Any restriction to trade, people is bad news for the industry", de Juniac said. That is 27.5 percent higher than the 54.9 dollars per barrel Brent in 2017.

Among the factors driving up the costs, fuel costs will account for 25 percent of the aviation industry's operating costs, according to IATA. For 2019, total revenues of $865 billion are expected (+6.5 per cent on 2018). Cargo yields (the non-passenger part of the industry) will be flat.

De Juniac called for confidence to be restored in the way that civil aircrafts are certified by aviation authorities and for better coordination among regulators and industry when accidents occur and swift action needs to be taken. "Nobody wins from trade wars, protectionist policies or isolationist agendas".

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