The International Air Transport Association (IATA) downgrades its 2019 profit outlook for the global air transport industry to US$28 billion (US$1=RM4.18) from US$35.5 billion forecast in December 2018, amid slowing demand and rising costs. – Reuters file photo
KUALA LUMPUR: The International Air Transport Association (IATA) downgrades its 2019 profit outlook for the global air transport industry to US$28 billion (US$1=RM4.18) from US$35.5 billion forecast in December 2018, amid slowing demand and rising costs.
That is also a decline on 2018 net post-tax profits which IATA estimates at U$30 billion (re-stated).
It said the business environment for airlines had deteriorated with rising fuel prices and a substantial weakening of world trade.
In 2019, overall costs are expected to grow by 7.4 per cent, outpacing a 6.5 per cent rise in revenues. As a result, net margins are expected to be squeezed to 3.2 per cent from 3.7 per cent in 2018. Profit per passenger will similarly decline to US$6.12 from US$6.85 in 2018.
“This year will be the tenth consecutive year in the black for the airline industry. But margins are being squeezed by rising costs right across the board — including labour, fuel, and infrastructure. Stiff competition among airlines keeps yields from rising.
“Weakening of global trade is likely to continue as the US-China trade war intensifies. This primarily impacts the cargo business, but passenger traffic could also be impacted as tensions rise. Airlines will still turn a profit this year, but there is no easy money to be made,” IATA’s director general and chief executive officer, Alexandre de Juniac, said in the statement.
In 2019, the return on invested capital earned from airlines is expected to be 7.4 per cent, down from 7.9 per cent in 2018.
“While this still exceeds the average cost of capital (estimated at 7.3 per cent), the buffer is extremely thin. Moreover, the job of spreading financial resilience throughout the industry is only half complete with a major gap in profitability between the performance of airlines in North America, Europe and Asia-Pacific, and the performance of those in Africa, Latin America and the Middle East.
“The good news is that airlines have broken the boom-and-bust cycle. 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,” said de Juniac.
Among others, IATA, which represents some 290 airlines comprising 82 per cent of global air traffic, said Asia Pacific airlines will deliver a net profit of US$6.0 billion, down from US$7.7 billion in 2018.
That represents a net profit per passenger of US$3.51 and a net margin of 2.3 per cent.
The region is showing very diverse performance. Accounting for about 40 per cent of global air cargo traffic makes the region the most exposed to weakness in world trade, and that, combined with higher fuel costs, is squeezing the regions’ profits. – Bernama