Airlines in for better times next year after weaker 2019

December 11, 2019
IATA Boss Alexandre de Juniac. Photo: IATA

Airlines are in for better times in 2020 as global profitability ticks up to a forecast $US29.3 billion after a worse than expected performance in 2019.

The International Air Transport Association cut its forecast profitability for 2019 from $US28 billion to $US25.9 billion after the weaker than expected year.

Most measures are expected to improve in 2020, although Boeing’s troubled 737 MAX will weigh on the profitability of US airlines.

And there is some good news for passengers next year with the average return airfare expected to fall in 2020 to $US293 (2018 dollars) before surcharges and tax. This will put it 64 percent below 1998 levels after adjusting for inflation.

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IATA director general Alexandre de Juniac attributed the weaker than expected 2019 economic performance to slowing economic growth, trade wars, geopolitical tensions and social unrest as well as continuing uncertainty over Brexit.

“Yet the industry managed to achieve a decade in the black, as restructuring and cost-cutting continued to pay dividends,’’ he said.

“It appears that 2019 will be the bottom of the current economic cycle and the forecast for 2020 is somewhat brighter.

“The big question for 2020 is how capacity will develop, particularly when, as expected, the grounded 737 MAX aircraft return to service and delayed deliveries arrive.”

IATA expects the 2020 improvements to be driven in part by improved global GDP growth of 2.7 percent, up from 2.5 percent in 2019, and a further dip in oil prices to $US63 per barrel (Brent crude).

Also contributing to the improved profitability, it predicts, will be flat unit labor costs, a 4 percent growth in passenger demand and modest rebound in cargo growth.

If achieved as expected, the profit will mean the industry will have been in the black for 11 years.

Forecast highlights of expected 2020 Global performance include:

  • A return on invested capital forecast of 6 percent (Up from 5.7 percent expected in 2019).
  • A net profit margin of 3.4 percent (up from 3.1 percent for 2019).
  • Overall industry revenues of $US872 billion, up 4.0 percent on $838 billion in 2019.
  • Industry operating expenses that climb 3.5 percent to $823 billion from $796 billion in 2019.
  • A 4 percent growth in passenger numbers to 4.72 billion.
  • A 2 percent increases in freight tonnes carried to 62.4 million.
  • An Average net profit per departing passenger of $US6.20, up from $US5.70 in 2019

A regional breakdown of the forecast shows North America continuing as the industry profit powerhouse but with a slight fall in net profit to $16.5 billion from $US16.9 billion in 2019.

IATA predicted this would be the result of a slowing economy and a significant increase in aircraft deliveries “particularly with the return of the 737 MAX fleet”.

Profitability for European airlines is expected to rise from $US6.2 billion in 2019 to $US7.9 billion as economic growth picks up and capacity growth remains moderate.

Asia-Pacific carriers will benefit from a recovery in world cargo to show a $US6 billion net profit, up from $US4.9 billion in 2019.

Some rebound is expected in the Middle East as airlines in the region restructure but not enough to take it back into profit.

“But this will take time and a loss is expected for a third consecutive year, estimated at $US 1 billion, trimmed from $US1.5 billion in 2019,’’ IATA said.

Latin American carriers are tipped to benefit from improvements in underlying economies as well as restructuring to return to the black with a small profit of $US100 million but African carriers are projected to show a similar loss to 2019 of $US200 million.