Global Airline industry to post $28 billion profit in 2019, lower than projected last year: IATA

Seoul: Global airline industry is expected to rake in a profit of USD 28 billion this year, much lower than the earlier forecast of USD 35.5 billion, IATA said Sunday, as rising fuel prices and weakening world trade are adversely impacting the business environment.

The International Air Transport Association (IATA), a grouping of around 290 airlines, also said that overall costs are expected to grow by 7.4 per cent, outpacing a 6.5 per cent rise in revenues. Further, profit per passenger would decline to USD 6.12 in 2019 from USD 6.85 last year.

Revising down its forecast, the IATA said the global air transport industry is projected to post a profit of USD 28 billion in 2019 compared to USD 35.5 billion estimated in December 2018.

“The business environment for airlines has deteriorated with rising fuel prices and a substantial weakening of world trade,” the grouping said.

According to IATA, the airlines’ fuel bill is projected to rise to USD 206 billion, which will represent 25 per cent of average operating costs.

“Jet fuel prices have risen with oil prices and we base our forecast on an average jet price of USD 87.5 per barrel next year, and USD 70 per barrel for the brent crude oil price,” it noted.

The earlier fall from the peaks of 2018 was driven by an over-supply of crude oil, partly from shale oil production in the US. But, sanctions on Iran’s oil exports and limited spare capacity in OPEC caused oil prices to rise back above to USD 70 billion.

IATA Director General and CEO Alexandre de Juniac said 2019 would be the tenth consecutive year in the black for the airline industry but margins are being squeezed by rising costs, including those related to labour, fuel and infrastructure.

Stiff competition among airlines keeps yields from rising and weakening of global trade is likely to continue as the US-China trade war intensifies, he added.

“We expect 1 per cent of the GDP to be spent on air transport in 2019, totalling USD 899 billion,” IATA said in a report.

However, it said that consumers would see a substantial increase in the value they derive from air transport in 2019.

“The average return fare (before surcharges and tax) of USD 317 in 2019 is forecast to be 61 per cent lower than in 1998, after adjusting for inflation,” the report said.

Airlines and customers are forecast to generate USD 129 billion in tax revenues this year.

“That’s the equivalent of 45 per cent the industry’s GVA (Gross Value Added, which is the firm-level equivalent to GDP,” it added.

Airlines in Asia-Pacific will show very diverse performances and is the most exposed region to weakness in world trade and cargo.

“Average profit per passenger this year is forecast at USD 3.51 as weaker cargo and higher than expected fuel costs reduce net profits to USD 6 billion and net margins to 2.3 per cent,” IATA said.

Commercial airlines are expected to take delivery of over 1,750 new aircraft, an investment of around USD 80 billion by the industry, which is dependent on the Boeing 737 MAX situation, the report said.