No easy money for airlines as 2019 profit expectation slumps

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June 02, 2019
IATA profit
IATA boss Alexandre de Juniac

The International Air Transport Association has downgraded its 2019 profit forecast from $US35.5  billion to $US28 billion as slowing demand and rising costs squeeze airlines.

Net profit for 2018 was also revised to $UA30 billion.

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Airlines were warned there would be no easy money in 2019 with many financial measures expected to fall.

The exception was revenue, which rose 6.5 percent to $US865 billion but still failed to keep pace with cost increases.

The airline umbrella group said the business environment for airlines had deteriorated with rising fuel prices and a substantial weakening of world trade.

Fuel prices (Brent) are now expected to be $US70 a barrel in 2019, 27.5 percent higher than 2017.

IATA expects a 7.4 percent rise in costs to outpace the  6.5 percent increase in revenues, cutting the profit per passenger from $US6.85 to $US6.12.

IATA director general Alexander de Juniac noted it was the 10th consecutive year that airlines would be in the black.

“But margins are being squeezed by rising costs right across the board – including labor, fuel and infrastructure,’’ he said.

“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 be impacted as tensions rise.”

On the plus side, de Juniac said airlines had broken the boom-and-bust cycle and a downturn in the trade cycle no longer plunged the industry into deep crisis.

“But under current circumstances, the great achievement of the airline 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.”

All regions were expecting profitability to fall with the exception of North America and Latin America.

Asia-Pacific carriers are expected to deliver a net profit of $US6 billion, down from $US7.7 billion in 2018.

IATA said the performance was diverse in the region but it was most exposed to the weakness in world trade because it accounted for about 40 percent of cargo traffic.

Middle Eastern carriers will deliver a combined loss of $US1.1 billion, slightly worse than a $US1 billion loss in 2018.

In Europe, airlines are expected to deliver a net profit of $US8.1 billion, down from $US9.4 billion in 2018.

North American airlines are tipped to deliver the strongest financial performance of $US15 billion, up from $14.5 billion in 2018, while Latin American carriers will post a $USO.2 billion net profit, up from a $US0.5 billion loss in 2018.

The expectation for African airlines was they would stay the same at about a $US0.1 billion loss.

Steve Creedy traveled to Seoul courtesy of Korean Air and IATA.