Iata sees rebound in 2019; trims 2018 profit estimate

Iata sees rebound in 2019; trims 2018 profit estimate
The aviation industry is on a more solid financial footing than at any time in its history.

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by

Issac John

Published: Wed 12 Dec 2018, 6:50 PM

Last updated: Wed 12 Dec 2018, 8:54 PM

Airline earnings across the globe are set to return to growth in 2019 after slowing down this year, boosted by lower jet-fuel costs and expanding economies, the International Air Transport Association (Iata) said on Wednesday.
Industry profits are expected to rise to $35.5 billion in 2019 from $32.3 billion in 2018, the global association of airlines said in a release. The grouping of around 290 airlines worldwide also said that the passenger numbers are expected to rise to 4.59 billion next year from 4.34 billion in 2018.
Releasing its latest Global Economic Outlook report, the Iata noted that in 2019, the average net profit per departing passenger is projected to be $7.75 compared to $7.45 for this year.
Along with rising profit growth, airlines will leave record carbon dioxide emissions 2019 as strong demand offsets cost pressures that trimmed profitability in 2018, the Iata said.
Iata director-general and CEO Alexandre de Juniac said the aviation industry is on a more solid financial footing than at any time in its history.
"We had expected that rising costs would weaken profitability in 2019, but the sharp fall in oil prices and solid GDP growth projections have provided a buffer," de Juniac said. "So we are cautiously optimistic that the run of solid value creation for investors will continue." The full benefit of the slide in jet-fuel prices won't be felt immediately in some regions because of "heavy levels of hedging", he added.
For 2018, the Iata revised its profit estimate to $32.3 billion, $1.5 billion lower than a forecast in June and more than $6 billion below the initial outlook a year ago. The new figure would represent a 14 per cent decline compared with 2017's all-time high of $37.7 billion.
Iata chief economist Brian Pearce said he did not expect a recession ahead but there was a lot to worry about, with trade protectionism and uncertainty around Brexit, although even the most chaotic outcome of Britain's exit from the European Union was expected merely to slow, not stop, long-term growth.
"The tariff wars are a worry for us. It's actually though really just the latter stages of a decade of protectionism, actually since the global financial crisis we've seen cross border trade growing at a much slower pace than we saw in the years of globalisation," Pearce said.
"We've seen a lot of governments effectively restricting cross border trade by soft protectionism. We're now seeing it more explicitly with tariff wars. We would certainly hope that governments would see sense, that it's a zero-sum game, that it doesn't benefit anybody to restrict global trade."
Margins would continue to be under pressure from wage pressures and non-oil costs, although fuel prices had fallen, and airlines around the world had seen dollar-denominated costs rising, he said.
Investors' return on capital was expected to stabilise at 8.6 percent this year and next. Although that would be the lowest since 2014, it would be above the cost of capital - the returns that investors could earn by putting their money elsewhere.
Governments needed to do better and support competitiveness and business-friendly policies, de Juniac said. The industry was approaching an infrastructure crisis and recovering from "a European air traffic management mess of epic proportions".
Carbon dioxide emissions, which were consistently below 700 million tonnes until 2013, will hit 895 million tonnes in 2018 and 927 million tonnes in 2018, Iata said. The UN says relentless rises in carbon dioxide emissions are the most important factor in causing catastrophic climate change.
The Iata originally forecast 2018 profits of more than $38 billion but cut that back to $33.8 billion in June.
- issacjohn@khaleejtimes.com


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