The global airline industry is expected to post a net profit of US$35.5 billion in 2019, its tenth year of profitability, predicts the International Air Transport Association (IATA).
The 2019 profit outlook is slightly ahead of the $32.3 billion expected net profit in 2018 (revised down from $33.8 billion forecast in June).
Lower oil prices and solid though slower economic growth (+3.1%) are extending the run of profits for the global airline industry, after profitability was squeezed by rising costs in 2018.
It is expected that 2019 will be the tenth year of profit and the fifth consecutive year where airlines deliver a return on capital that exceeds the industry’s cost of capital, creating value for its investors, said IATA in a release.
“We had expected that rising costs would weaken profitability in 2019. But the sharp fall in oil prices and solid GDP growth projections have provided a buffer,” said Alexandre de Juniac, IATA’s director general and CEO.
“So we are cautiously optimistic that the run of solid value creation for investors will continue for at least another year. But there are downside risks as the economic and political environments remain volatile,” he added.
Other expected performance outcomes for the industry in 2019 include overall revenues reaching $885 billion (up 7.7% on $821 billion in 2018); a return on invested capital of 8.6% (unchanged from 2018); and a margin on net post-tax profits of 4.0% (basically unchanged from 3.9% in 2018).
Additionally, passenger numbers are seen to rise to 4.59 billion in 2019 (up from 4.34 billion in 2018), while cargo tonnes carried will total 65.9 million (up from 63.7 million in 2018).
As for demand growth, it is anticipated to slow down for both passenger traffic (+6.0% in 2019, +6.5% in 2018) and cargo (+3.7% in 2019, +4.1% in 2018), said IATA.
Meanwhile, industry drivers for 2019 include GDP, which is forecast to expand by 3.1% (marginally below the 3.2% expansion in 2018). Significant downside risks to the “slower but still robust” growth include trade wars and political uncertainties such as with BREXIT.
Fuel costs, another industry driver, are seen to fall next year, but at a slower pace. However, the full impact of this decline will be delayed due to heavy levels of hedging in some regions. Fuel is expected to account for 24.2% of the average airline’s operating costs (an increase from 23.5% forecast for 2018).
Total employment by airlines is expected to reach 2.9 million in 2019, up 2.2% on 2018. Wages are also rising, reflecting the tightness of labor markets, and it is expected that unit labor costs will increase by 2.1% in 2019 after a long period of stability.
Passenger traffic is expected to grow 6% in 2019, which will outpace the forecast capacity increase of 5.8%, and remains above the 20-year trend growth rate.
This in turn will increase load factors and support a 1.4% increase in yields (partially clawing back the 0.9% fall experienced in 2018). Passenger revenues, excluding ancillaries, are expected to reach $606 billion (up from $564 billion in 2018).
The 3.7% annual increase in cargo tonnage to 65.9 million tonnes is the slowest pace since 2016, reflecting the weak world trade environment impacted by increasing protectionism. Cargo yields are expected to grow by 2.0%. This is well below the exceptional 10% yield growth in 2018. It does, however, continue the recent strengthening of the cargo business, since cost increases are lower. Overall cargo revenues are expected to reach $116.1 billion (up from $109.8 billion in 2018).
Meanwhile, on the regional outlook, all regions, except Africa, are expected to report profits in 2018 and 2019. Carriers in North America continue to lead on financial performance, accounting for nearly half of the industry’s total profits. Financial performance is expected to improve compared to 2018 in all regions except for Europe, where improvement has been delayed by the high degree of fuel hedging.
For Asia-Pacific carriers, airlines are expected to report a $10.4 billion net profit in 2019 (up from $9.6 billion in 2018). The expected net profit per passenger is expected to be $6.15 (3.8% net margin). This is a region of diverse markets, some of which are seeing strong growth from new LCC entrants while others are very dependent on outbound cargo from key manufacturing centers.
Cargo revenue growth in the region has slowed from the strong performance of 2017 but remains positive for airlines in the region. Lower fuel costs, low levels of fuel hedging and strong regional economic growth are supporting the region’s profitability in 2019, IATA said.
Photo: Aero Icarus
