Rising costs and weakening cargo revenue are hurting airline
profitability this year, though passenger business "looks healthy and is
growing significantly," International Air Transport Association chief
economist Brian Pearce said at the organization's general meeting in Seoul.
IATA cut its forecast for airline profit this year to $28
billion from December's forecast of $35.5 billion; revenue growth is not
keeping pace with growth in costs. In particular, fuel costs are projected to
grow to $206 billion, compared with $180 billion in 2018. At the same time,
airlines are taking a hit from U.S. tariffs and retaliatory tariffs. "International
trade is shrinking, and that is very bad for the cargo business," Pearce
said. IATA projects cargo demand will be flat year over year in 2019 because of
the tariffs. Trade weakness could affect passenger demand, as well, though that
has not yet happened, he said.
Base fares, meanwhile, will be "more or less flat this
year," Pearce said. That coupled with the cargo slowdown will make
airlines more dependent on ancillaries to cover "thin and fragile"
margins, he said.
North American airlines are set to be the most profitable in
2019, with $15 billion in post-tax profit, up from $14.5 billion in 2018,
according to IATA. European airlines will see $8.1 billion in profits, down
from $9.4 billion in 2018, and Asia/Pacific airline profits are expected to
decline to $6 billion from $7.7 billion in 2018. Both regions are particularly
exposed to the trade weakening. An improving economy in Brazil will push Latin
America airlines to a slight profit this year—$200 million, compared with a
$500 million loss in 2018—and Middle Eastern airline losses will widen to $1.1
billion, compared with a $1 billion loss in 2018. African airlines' losses will
remain flat year over year at $100 million.
Despite the challenges, IATA director general and CEO
Alexandre de Juniac noted that 2019 will be the 10th consecutive year that the
overall industry has been in the black. "We're seeing sustained financial
performance, a shift from the boom and mostly bust cycles of the past," he
said.