IATA downgrades 2019 global outlook

The International Air Transport Association (IATA) has downgraded its 2019 global outlook, citing rising fuel prices and a substantial weakening of world trade.

IATA now forecasts a $28 billion profit, down from $35.5 billion forecast in December 2018.

That is also a decline on 2018 net post-tax profits which IATA estimates at $30 billion.
                                                
In 2019 overall costs are expected to grow by 7.4%, outpacing a 6.5% rise in revenues.

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).
 
IATA director general and CEO Alexandre de Juniac said: "This year will be the 10^th 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.2
 
In 2019, the return on invested capital earned from airlines is expected to be 7.4% (down from 7.9% in 2018).

While this still exceeds the average cost of capital (estimated at 7.3%), 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.
 
De Juniac added: "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."

The high price of fuel from 2018 ($71.6/barrel Brent) will continue in 2019 with an average cost of $70.00/barrel Brent expected. This is 27.5% higher than the $54.9/barrel Brent in 2017. Fuel costs will account for 25% of operating costs (up from 23.5% in 2018).

Non-fuel unit costs are expected to rise to 39.5 cents per available tonne kilometer from 39.2 cents, because of higher labor, infrastructure and other costs.

Overall expenses are expected to rise 7.4% to $822 billion.

Overall revenues are not keeping pace with the rise in costs. For 2019, total revenues of $865 billion are expected (+6.5% on 2018).

Passenger demand growth is expected to be more robust than for cargo. This is because global GDP growth is expected to remain relatively strong at 2.7%, albeit slower than in 2018 (3.1%). 

All regions are expecting a reduction in profitability with the exception of North America and Latin America.

European airlines will deliver a net profit of $8.1 billion (down from $9.4 billion in 2018).