The International Air Transport Association (IATA) has said the industry outlook faces headwinds of rising costs, slower growth and flat global trade following its announcement of a downgraded 2019 forecast.
At its 75th AGM in Seoul the organization announced a revised figure of $28 billion profit for 2019, down from the $35.5 billion forecast in December 2018.
Addressing some of the most significant risks to the growth of aviation, IATA’s Director General and CEO Alexandre de Juniac said protectionist measures across the globe were hurting the industry and called for a cessation of current hostilities.
Airlines will still create value for investors in 2019 with above cost-of-capital returns, but only just
“A more inclusive globalization must be the way forward,” said de Juniac. “Nobody wins from trade wars, protectionist policies or isolationist agendas, but everybody benefits from growing connectivity. Aviation needs borders that are open to people and trade.”
The year so far has seen the operating environment for airlines deteriorate as fuel prices rise and world trade continues to weaken.
Overall costs look set to outstrip rising revenues, by 7.4% to 6.5%, which will see net margins fall to 3.2% (from 3.7% in 2018) and profit per passenger decline also, down to $6.12 (from $6.85 in 2018).
It’s not all doom and gloom, with 2019 the 10th consecutive year in the black for the airline industry, but de Juniac said that a squeeze on margins as a result of rising labor, fuel and infrastructure costs means “there is no easy money” to be made.
“The good news is that airlines have broken the boom-and-bust cycle,” he said. “A downturn in the trading environment no longer plunges the industry into a deep crisis.
“But under current circumstances, the great achievement of the industry—creating value for investors with normal levels of profitability is at risk. Airlines will still create value for investors in 2019 with above cost-of-capital returns, but only just.”
The return on invested capital is expected to fall to 7.4% (from 7.9% in 2018), but will still sit above the average cost of capital, which is estimated at 7.3% according to IATA.
To read Alexandre de Juniac’s full speech, click here