Summary:
- IATA says lower oil prices and solid, albeit slower, economic growth (+3.1%) will extend the run of profits for the global airline industry into 2019;
- It forecasts the global airline industry net profit to be USD35.5 billion in 2019, slightly ahead of the USD32.3 billion expected net profit in 2018;
- All regions, except Africa, are expected to report profits in 2018 and 2019 with North American airlines continuing to lead on financial performance.
IATA says lower oil prices and solid, albeit slower, economic growth (+3.1%) will extend the run of profits for the global airline industry, after profitability was squeezed by rising costs this year. It is expected that 2019 will be the tenth year of profit and the fifth consecutive year where airlines deliver a return on capital that exceeds the industry's cost of capital, creating value for its investors.
The return on invested capital is expected to be 8.6%, predicts IATA, unchanged from 2018, and the margin on net post-tax profits is expected be 4.0%, up marginally from 3.9% in 2018. Overall industry revenues are expected to reach USD885 billion, a +7.7% rise on the USD821 billion level predicted for 2018, while average net profit per departing passenger will increase to USD7.75 from USD7.45 in 2018. But, IATA acknowledges demand growth will slow for both passenger traffic (+6.0% in 2019, +6.5% in 2018) and cargo (+3.7% in 2019, +4.1% in 2018).
"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," says Alexandre de Juniac, director general and CEO, IATA. "We are cautiously optimistic that the run of solid value creation for investors will continue for at least another year. But there are downside risks as the economic and political environments remain volatile."
All regions, except Africa, are expected to report profits in 2018 and 2019. Carriers in North America continue to lead on financial performance, accounting for nearly half of the industry's total profits. Financial performance is expected to improve compared to 2018 in all regions except for Europe, where improvement has been delayed by the high degree of fuel hedging.
But, what are the key performance drivers for 2019. IATA highlights the following:
- Economic Growth: "GDP is forecast to expand by 3.1% in 2019 (marginally below the 3.2% expansion in 2018). This slower but still robust growth is a main driver of continued solid profitability. There are significant downside risks to growth from trade wars and political uncertainties such as with Brexit, but the consensus view is that these factors will not offset the positive impetus from expansionary fiscal policy and growing business investment in major economies."
- Fuel Costs: "The 2019 industry outlook is based on an anticipated average oil price of USD65/barrel (Brent) which is lower than the USD73/barrel (Brent) experienced in 2018, following the increase in US oil output and rising oil inventories. This is welcome relief for airlines which have seen jet fuel prices fall, albeit at a slower pace… Nonetheless, jet fuel prices are expected to average USD81.3/barrel in 2019, lower than the $87.6/barrel average for 2018). The full impact of this decline will be delayed due to heavy levels of hedging in some regions. Fuel is expected to account for 24.2% of the average airline's operating costs (an increase from 23.5% forecast for 2018)."
- Labour: "Total employment by airlines is expected to reach 2.9 million in 2019, up +2.2% on 2018. Wages are also rising, reflecting the tightness of labour markets, and it is expected that unit labour costs will increase by +2.1% in 2019 after a long period of stability. Aviation jobs are getting more productive. In 2019 we expect productivity to increase by +2.9% to 535,000 available tonne kilometres/employee."
- Passenger: "Passenger traffic (RPKs) is expected to grow +6% in 2019, which will outpace the forecast capacity (ASKs) increase of +5.8%, and remains above the 20-year trend growth rate. This in turn will increase load factors and support a +1.4% increase in yields (partially clawing back the -0.9% fall experienced in 2018). Passenger revenues, excluding ancillaries, are expected to reach USD606 billion (up from USD564 billion in 2018).
The development of the aviation industry and enhanced global connectivity is supporting a number of groups, according to IATA. It says the 2019 average return airfare (before surcharges and tax) is expected to be USD324 (2018 dollars), which is 61% below 1998 levels after adjusting for inflation, while average air freight rates in 2019 are expected to be USD1.86/kg (2018 dollars) which is a 62% fall on 1998 levels.
The number of unique city pairs served by airlines is forecast to grow to 21,332 in 2018 (up by 1,300 from 20,032 in 2017), and more than double 1998 levels, while the global spend by consumers and businesses on air transport is expected to reach USD919 billion in 2019, up +7.6% on 2018 and equivalent to 1.0% of global GDP. Airlines are also supporting governments, highlights IATA, and are expected to contribute USD136 billion to state coffers in tax revenues in 2019 (a +5.8% increase over 2018).