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Airlines squeezed by slowing demand, rising costs

Rising costs including labour, fuel and infrastructure are biting into margins right across the board, IATA says, with European airlines suffering too.

The International Air Transport Association has announced a downgrade of its brighter previous 2019 outlook for the global air transport industry to a $28 billion profit, from a $35.5 billion forecast back in December.

The business environment for airlines has deteriorated, IATA says, with rising fuel prices and a substantial weakening of world trade.

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.

“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,” said Alexandre de Juniac, IATA’s director general and CEO at the association’s annual general meeting being held in Seoul.

“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.”

Regional variations
Geographically, all regions are expecting a reduction in profitability with the exception of North America and Latin America.

North American carriers will deliver the strongest financial performance this year, with a $15 billion post-tax profit, up from $14.5 billion in 2018, the association predicts. There, consolidation has helped to sustain load factors above 65%, and ancillaries limit the impact of higher fuel costs.

European airlines will deliver a net profit of $8.1 billion, down from $9.4 billion in 2018. Load factors are the highest at 70.2%, but the highly competitive area, high regulatory costs and inefficient infrastructure are causing low yields.

Middle Eastern airlines will post a combined net loss of $1.1 billion, slightly worse than the $1 billion loss in 2018, in a region suffering from the business environment and business models, while announced schedules point to a substantial slowdown in capacity growth in 2019.

Asia-Pacific carriers will deliver a net profit of $6 billion, down from $7.7 billion in 2018, Latin American airlines will see a net profit of $0.2 billion, an improvement from the $0.5 billion loss in 2018 as the recovery of the Brazilian economy offsets higher oil prices, and African carriers will post a $0.1 billion loss, unchanged from 2018, continuing a weak trend into its fourth year, according to IATA.

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