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Cautious optimism extends into 2019 for flights

GENEVA – The International Air Transport Association (IATA) forecasts the global airline industry net profit to be $35.5 billion in 2019, slightly prior to the $32.3 billion expected net profit in 2018 (revised down from $33.8 billion forecast in June). Highlights of expected 2019 performance include:

  • The return on invested capital is likely to be 8.6% (unchanged from 2018)
  • The margin on net post-tax profits is expected be 4.0% (basically unchanged from 3.9% in 2018)
  • Overall industry revenues are anticipated to attain $885 billion (+7.7% on $821 billion in 2018)
  • Passenger numbers are anticipated to attain 4.59 billion (up from 4.34 billion in 2018)
  • Cargo tonnes carried are anticipated to attain 65.9 million (up from 63.7 million in 2018)
  • Slower demand growth for both passenger traffic (+6.0% in 2019, +6.5% in 2018) and cargo (+3.7% in 2019, +4.1% in 2018)
  • Average net profit per departing passenger of $7.75 ($7.45 in 2018)

Lower oil prices and solid, albeit slower, economic growth (+3.1%) are extending the run of profits for the global airline industry, after profitability was squeezed by rising costs in 2018. It really is expected that 2019 could 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 because of its investors. 

“We’d expected that rising costs would weaken profitability in 2019. However the sharp fall in oil prices and solid GDP growth projections have provided a buffer. So we have been cautiously optimistic that the run of solid value creation for investors will continue for at the very least another year. But you can find risks because the economic and political environments remain volatile downside,” said Alexandre de Juniac, IATA’s Director CEO and General.

Performance Drivers in 2019
Economic Growth: GDP is forecast to expand by 3.1% in 2019 (marginally below the 3.2% expansion in 2018). This slower but robust growth is really a main driver of continued solid profitability still. You can find significant downside risks to growth from trade wars and political uncertainties such as for example with BREXIT, however the consensus view is these factors won’t offset the positive impetus from expansionary fiscal policy and growing business investment in major economies.

Fuel Costs: The 2019 industry outlook is dependant on an anticipated average oil price of $65/barrel (Brent) that is less than the $73/barrel (Brent) experienced in 2018, following upsurge in US oil output and rising oil inventories. That is welcome relief for airlines that have seen jet fuel costs fall, albeit at a slower pace due to the impact of low-sulfur environmental measures undertaken by the marine sector which have increased demand for diesel (which competes with jet fuel for refinery capacity). Nonetheless, jet fuel costs are anticipated to average $81.3/barrel in 2019, less than the $87.6/barrel average for 2018). The entire impact of the decline will be delayed because of heavy degrees of hedging in a few regions. Fuel is likely to take into account 24.2% of the common airline’s operating costs (a rise from 23.5% forecast for 2018).

Labor: Total employment by airlines is likely to reach 2.9 million in 2019, 2 up.2% on 2018. Wages are rising also, reflecting the tightness of labor markets, which is expected that unit labor costs shall increase by 2.1% in 2019 following a any period of time of stability. Aviation jobs are receiving more productive. In 2019 we expect productivity to improve by 2.9% to 535,000 available tonne kilometers/employee. 

Passenger: Passenger traffic (RPKs) is likely to grow 6% in 2019, that will outpace the forecast capacity (ASKs) increase of 5.8%, and remains above the 20-year trend growth rate. Therefore increase load support and factors a 1.4% upsurge in yields (partially clawing back the 0.9% fall experienced in 2018). Passenger revenues, excluding ancillaries, are anticipated to attain $606 billion (up from $564 billion in 2018).

Regional Outlook

All regions, except Africa, are anticipated to report profits in 2018 and 2019. Carriers in THE UNITED STATES continue steadily to lead on financial performance, accounting for pretty much 1 / 2 of the industry’s total profits. Financial performance is likely to improve in comparison to 2018 in every regions aside from Europe, where improvement has been delayed by the high amount of fuel hedging.


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  • North American carriers are anticipated to provide the strongest financial performance in 2019 with a $16.6 billion net profit (up from $14.7 billion in 2018). That is clearly a 6.0% net margin and represents a net profit of $16.77 per passenger, which really is a marked improvement from six years earlier just. Net margin is up from 2018 (5.7%) as low degrees of fuel hedging allows lower prices to impact immediately. Profits are buffered by high load factors and ancillary revenues further.
  • European carriers are anticipated to report a $7.4 billion net profit in 2019 (down slightly from $7.5 billion in 2018). The expected net profit per passenger of $6.40 (3.4% net margin) is roughly a third the web profit per passenger likely to be generated by UNITED STATES carriers. Intense competition is keeping yields regulatory and low costs are high. The spot has recovered from the terrorist attacks of 2016. However in 2018 it suffered additional costs of $2 billion because of 61% upsurge in delay minutes due to air traffic control deficiencies. Seeking to 2019, high degrees of hedging in your community means that the positive impact of lower oil prices will undoubtedly be delayed.
  • Asia-Pacific carriers are anticipated to report a $10.4 billion net profit in 2019 (up from $9.6 billion in 2018). The expected net profit per passenger is likely to be $6.15 (3.8% net margin). This can be a region of diverse markets, a few of which are seeing strong growth from new LCC entrants while some are very influenced by outbound cargo from key manufacturing centers. Cargo revenue growth has slowed from the strong performance of 2017 but remains positive for airlines in your community. Lower fuel prices, low degrees of fuel hedging and strong regional economic growth are supporting profitability in 2019 in this area. 
  • Middle Eastern carriers are anticipated to report an $800 million net profit in 2019 (up from the weaker $600 million in 2018). The expected net profit per passenger is $3.33 (1.2% net margin). The spot has been challenged by the sooner impact of low oil revenues, conflict, competition from other ‘super-connectors’ and setbacks to particular business models, resulting in a sharp slowdown in capacity growth (after greater than a decade of double-digit growth, passenger capacity growth was halved to 6.7% in 2017). The spot reported 4.7% capacity growth in 2018 and is likely to slow to 4.1% in 2019, which with restructuring is assisting to generate a recovery together.
  • Latin American carriers are anticipated to report a $700 million net profit in 2019 (up from $400 million in 2018). The expected net profit per passenger is $2.14 (1.6% net margin). Fiscal conditions in local markets slowly are just recovering, as Brazil’s economy emerges from recession, but Argentina faces renewed difficulties. The effectiveness of the united states dollar has put into airlines’ challenges in your community by raising the neighborhood currency cost of key US$-denominated inputs such as for example oil and aircraft, but significant restructuring and joint ventures are improving performance. 
  • African carriers are anticipated to report a $300 million net loss in 2019 (slightly improved from the $400 million net loss in 2018). The expected net loss per passenger is $3.51 (-2.1% net margin). This makes Africa the weakest region, since it has been within the last four years. Performance is improving, but only slowly. Losses are anticipated to be cut in 2019 as fuel costs decrease. The spot advantages from higher-than-average yields and lower operating costs in a few categories. However, few airlines in your community have the ability to achieve adequate load factors to create profits. 

Passenger Demand by Region

Demand

Capacity

2018E

2019F

2018E

2019F

Global

6.5

6.0

6.0

5.8

North America

5.0

4.5

4.8

4.3

Europe

6.4

5.5

5.7

6.1

Asia Pacific

8.5

7.5

7.6

7.1

Middle East

4.6

5.5

4.7

4.1

Latin America

6.0

6.0

6.5

5.9

Africa

3.6

5.0

1.4

4.9

Air Transport’s Economic Contribution

  • Some key indicators of the huge benefits from increasing global connectivity include:
  • The 2019 average return airfare (before surcharges and tax) is likely to be $324 (2018 dollars), that is 61% below 1998 levels after adjusting for inflation.
  • Average air freight rates in 2019 are anticipated to be $1.86/kg (2018 dollars) which really is a 62% fall on 1998 levels.
  • The true amount of unique city pairs served by airlines is forecast to cultivate to 21,332 in 2018 (up by 1,300 from 20,032 in 2017), and much more than double 1998 levels.
  • The global spend by consumers and businesses on air transport is likely to reach $919 billion in 2019, 7 up.6% on 2018 and equal to 1.0% of global GDP.
  • Airlines are anticipated to contribute $136 billion to government coffers in tax revenues in 2019 (a 5.8% increase over 2018).

“Flights has been this type of great deal for consumers never. Not merely are fares staying low, your options for travelers are expanding. Some 1,300 new direct links between cities were opened in 2018. And 250 million more journeys by air occurred in 2018 than in 2017,” said de Juniac.

IATA, Deloitte Develop Guidance for Successful Airport Concessions Recognizing the Strategic National Need for Airports 
IATA and Deloitte have published guidance materials for governments considering a concession based privatization for airport infrastructure.  

Balanced Concessions for the Airport Industry builds on industry best practice and the outcome of research in to the effectiveness of concession contracts from the perspective of a variety of stakeholders. The guidance document offers a framework for new means of developing and delivering airport concession contracts predicated on a wider stakeholder perspective than currently typically used. 

The new “Balanced Concession” model aims to spot aligned and similar interests to focus on a “virtuous cycle” in airport concessions which benefits the aviation industry, mitigating risk and delivering innovation, better public value, and a greater consumer experience.

The purpose of Balanced Concessions for the Airport Industry would be to help governments make better-informed decisions using best-practices gleaned from decades of experience with the nice, the bad and the ugly of airport concessions.

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