China tariffs create legitimate uncertainty for airlines just as corporate demand turns a corner

26 March, 2018

US major Delta Air Lines is maintaining a positive corporate outlook for 1Q2018, but new trade retaliation against China could create huge levels of uncertainty for business travel going forward.

US President Donald Trump has followed through on a threat to impose billion in tariffs on Chinese goods, issuing an order of USD50 billion in tariffs on Chinese imports. The change tripped US stock markets as worries grew that the President’s actions would trigger a trade war. The latest round of tariffs follows the administration’s decision to levy tariffs on aluminium and steel.

Details of the tariffs remain sparse, but there is legitimate concern that prices for consumer goods will increase, ultimately creating uncertainty for the US economy. According to news outlet The Washington Post, 30 major retail chains banded to together and warned President Trump’s Administration that broadly applied tariff remedies on imports from China could hurt American households.

The threat of negative effects of the US’ tariff decision on consumer occurs as the US major global airline Delta recently noted both business and leisure demand looks solid for 1Q2018. The airline is forecasting unit revenue growth of 4% to 5%, and noted corporate sales trends were up 10% year-on-year.

At the beginning of 2018, Delta remarked its latest survey of corporate travel managers showed more than 88% projected their spend would be maintained or increase in 2018, which was the most positive outlook the airline had seen in three years.

There may not be any immediate effects for US airlines’ demand forecast, but if consumer demand falls, travel demand will suffer. Mr Trump’s tariffs are casting a formidable amount of uncertainty over airline outlooks for the medium to long term just as corporate demand is turning a corner.