The global airline industry is expected to record its lowest profits in five years as fuel costs rise and world trade weakens.
The International Air Transport Association, the 290 members of which account for 82% of scheduled air traffic, cut its forecast for earnings across the industry this year by more than a fifth on Sunday.
Profits in 2019 are now expected to reach $28bn (£22.2bn), Iata said, having forecast $35.5bn in December.
That would also represent a decline on the 2018 figure, which Iata estimates reached $30bn, and would be the lowest since 2014.
Airline executives who have gathered in the South Korean capital, Seoul, are faced with a markedly worse outlook than at last year’s meeting in Sydney. Donald Trump’s White House has escalated its trade dispute with China, while the continuing worldwide grounding of the US manufacturer Boeing’s 737 Max fleet has added to costs – although Iata did not make explicit reference to that in its forecasts.
The 737 Max has been grounded by regulators since March after concerns were raised about the functioning of safety features in two fatal crashes. Iata’s director general, Alexandre de Juniac, last week said he did not expect the plane to return to the skies until August.
Iata called for regulators across the world to work together to implement software fixes to the planes, after different countries banned the 737 Max from flying at different times, creating confusion among passengers. De Juniac told reporters in Seoul that “any rift between regulators is not in anyone’s interest”.
Despite stiff competition between airlines and rising costs – with oil prices this year expected to be 27.5% higher than in 2017 – the industry is still expected to record its 10th consecutive year of profits since the financial crisis.
North America will be the most profitable region, with post-tax earnings expected to increase by $500m to $15bn for 2019, Iata said. Profits are expected to fall in Europe and the Asia-Pacific region, with the latter particularly exposed to weaker trade.
De Juniac said the industry had broken the cycle of “boom and bust” that previously left it more vulnerable to deteriorating conditions, but nevertheless said “normal levels of profitability” were in danger.
The continued trade dispute between the US and China represents a major risk for the industry, Iata said.
The industry body heavily criticised “the proliferation of protectionist measures and the escalation of trade wars”, driven mainly by the US. Last month, Trump raised tariffs on Chinese imports worth $200bn, adding to previous levies. The US president then added further to tensions last week with the shock announcement of tariffs on Mexican imports “until the illegal immigration problem is remedied”.
Iata expects the impact of tariffs to stifle any growth in demand for cargo transport during this year, adding to the difficulties of an “already beleaguered” sector.
The negative effect on demand could also spill over into passenger volumes if worsening trade relations affect confidence, De Juniac warned. However, passenger numbers are still expected to rise by 5% year-on-year to 4.6 billion, albeit more slowly than the 7.4% growth rate seen last year.
With the relentless rise in demand for air travel, the industry has been forced to address its role in global heating. Iata members passed a resolution calling on governments to implement a scheme that would cap net carbon dioxide emissions from the airline industry at 2020 levels.
The airline industry is pushing for the carbon offsetting and reduction scheme for international aviation to be the sole international mechanism for carbon pricing, rather than having multiple regimes in different regions. However, the scheme has been criticised by environmental campaigners for its focus on offsetting greenhouse gas emissions rather than reducing them in absolute terms.
Transport & Environment, a non-governmental organisation based in Brussels, has previously warned Corsia is less ambitious than current EU emissions reduction goals.
