Iata slashes airlines' 2019 profits forecast and expects stability in 2020

Middle East compabies to see some rebound in 2020 as regional economies recover

Alexandre de Juniac, director general of Iata, delivers a 'State of the Industry' address at Iata's conference in Geneva on December 11. Courtesy of IATA

Global airlines' profits will drop to worse-than-expected levels in 2019 as slowing economies and trade tensions hurt air travel demand and cargo volumes, according to the International Air Transport Association.

The aviation industry group slashed its annual forecast for airline profits in 2019 by 7.5 per cent to a combined $25.9 billion (Dh95.1bn) net profit this year, down from its June forecast of $28bn, Iata told reporters at a conference in Geneva on Wednesday. The latest forecast is a 5.1 per cent year-on-year decline from a collective net profit of $27.3bn in 2018.

"Trade wars produce no winners," Alexandre de Juniac, director general of Geneva-based Iata, told the annual media gathering in Switzerland. "We are better off with borders that are open to people and to trade."

A weaker-than-expected global economic growth of 2.5 per cent in 2019, compared to a 2.7 per cent forecast in June, has contributed to softer passenger and cargo demand, Iata said. In addition, geopolitical tensions, social unrest and continuing uncertainty over Brexit created tougher business conditions for airlines, with trade growth slowing to just 0.9 per cent, compared to 2.5 per cent in the June forecast.

In 2020, more stability is expected across the industry with global carriers forecast to earn $29.3bn next year, Brian Pearce, Iata economist, said.

Improved performance is anticipated as economic growth picks up by 2.7 per cent and world trade strengthens by 3.3 per cent. However, this is contingent on a "truce" in the trade war between the US and China, Mr Pearce said.

Uncertainty around the timing of the grounded Boeing 737 Max return to service is also clouding the outlook.

"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,” Mr de Juniac said.

The 737 Max returns to service next year would mean a surge of aircraft deliveries entering the market quickly, creating a glut of additional capacity that could be "hard to swallow" for some markets, Mr Pearce said. However, that would be partially balanced by the need to retire older aircraft for the more fuel-efficient jets.

Carriers in the Middle East are forecast to post a loss of $1bn in 2020, trimmed from a loss of $1.5bn in 2019, according to Iata's annual forecast.

The regional carriers are expected to see a slight rebound in 2020 as regional economies grow at a faster rate than in 2019.

"There's a lot of self-help by airlines, a lot of restructuring, especially in the Gulf, and they're already starting that improvement in earnings," he said.  "Losses will continue in the region but at a lower rate."

Dubai-based Emirates has conducted a review of its route and fleet requirements while Abu Dhabi's Etihad Airways is restructuring to return to profit.

In other regions, the outlook for airlines' profitability is mixed.

Carriers in Africa and Latin America are expected to lose money in 2019 while North America will be the most profitable region, accounting for 65 per cent of industry profits.

In 2020, Latin American carriers will return to profitability as regional economies improve while North American airlines will see profitability decrease due to a slowing economy and a significant increase in aircraft deliveries particularly with the expected return to service of the 737 Max fleet.

Another challenge for the industry is the issue of "flight-shaming," a Swedish-born movement against the carbon emissions produced by flying.

"The enemy is not flying, the enemy is carbon," Mr de Juniac said, outlining the industry's efforts to reduce its carbon footprint.

Mr de Juniac emphasized the importance for governments to develop the biofuels industry as part of the aviation industry's efforts to cut carbon emissions. He criticised European attempts at environmental taxation on airlines, pointing to Corsia, the emissions reduction and offsetting scheme developed by the industry due to take effect in 2021.

Iata also revealed that 59 airlines have committed to the '25by2025' campaign, which seeks to address the problem of gender imbalance in aviation. The initiative will see airlines commit to increasing the number of women in senior positions in airlines by either 25 per cent against currently reported metrics or to a minimum representation of 25 per cent by 2025.

Middle East airlines including Etihad Airways and Gulf Air have signed up to the programme.