Contributor - Europe

Cathy Buyck

Even though 2019 will mark the tenth consecutive year of profitability for the global airline industry, full-year profits will come in lower than expected and at its lowest level since 2015, when world’s airlines jointly reported record net earnings of $36 billion—or $10.08 per departing passenger, the International Air Transport Association said on Wednesday. IATA further reported that net profit for 2019 will likely total $25.9 billion, which is almost a third lower than the forecast $35.5 billion it released in December 2018 and about 8 percent lower than the $28 billion net profit it still had anticipated in June.&nbsp; “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,” noted IATA director-general and CEO Alexandre de Juniac, speaking at the trade body’s annual global media days in Geneva.

 


The industry managed to achieve a decade in the black, he said, yet he described it as “absolutely disproportionate” that a group of around 30 airlines has driven the improvement in the aggregate industry-level profitability. “There is a long tail of airlines barely breaking even and a group making significant losses,” chief economist Brian Pearce said.

 


“We’ve downgraded our forecasts for 2019 pretty much across the board,” he added. The slowing of GDP growth and the trade tensions, especially the tariffs on trade between China and the U.S., affected cargo the most, and the segment “had a pretty miserable year,” Pearce said. With an expected 3.3 percent decline in demand for 2019, cargo traffic is turning negative for the first time since 2012 and will represent the deepest drop since the 2009 financial crisis. IATA expects cargo revenue to fall by 8 percent compared with 2018, while passenger revenue should inch up to $567 billion. Industrywide, IATA is forecasting full-year global revenue of $838 billion, compared with $899 billion predicted in June.

 


Net profit per passenger is expected to fall to $5.70 this year, from $6.22 in 2018. The industry’s net profit margin is anticipated to slide to 3.1 percent in 2019, from 3.4 percent in 2018 and 5 percent in 2017.

 


For 2020, de Juniac expects “a better year” after a challenging 2019.&nbsp;The IATA forecast released today calls for the world’s airlines collectively—including non-IATA members like Ryanair, AirAsia,&nbsp;and Southwest—to make a $29.3 billion net profit on revenues of $872 billion, up 4 percent on 2019. It expects margin on net profit to reach 3.4 percent and return on invested capital 6 percent, slightly up from this year's 5.7 percent. On a per-passenger basis, IATA expects net profit to climb to an average of $6.20, although regional differences will remain high. For example, North American airlines will earn $16 per passenger, the highest profit of any region.

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