Global airline sector facing worst performance post financial crisis

Nearly 75 years after International Air Transport Association (IATA) — a trade body representing international airlines — was formed, the airline industry is facing its worst performance post the global financial crisis during the late 2000s, largely because of the trade war between the US and China.

But there is a silver lining. Year 2020 may not be that bad, as industry profitability is expected to stabilise, though its growth at 4.1 per cent will be much less than the 4.2 per cent growth rate recorded this year.

According to IATA forecast, the global airline industry will make a net profit of $29.3 billion in 2020, up over $25.9 billion expected in 2019 (revised downward from a $28-billion forecast in June).

Better off with borders

Condemning the ongoing trade wars, Alexandre de Juniac, Director-General and CEO, IATA, told journalists gathered in Geneva for the Annual Media Day organised by the airline trade body, there are some forces in this world today that are working against the freedom to fly. “IATA has and will continue to take a strong stance that we are better off with borders that are open to people and to trade. Trade war produce no winners,” he said.

During his presentation on the performance of the global airline industry, Brian Pearce, the chief economist of IATA, said slightly stronger economic growth in 2020, together with stable fuel prices, is expected to keep air travel (revenue passenger kilometres or RPK) growth close to this year’s at 4.1 per cent. “2018 was the last of nine years at or about 5 per cent. We have now entered a period of below-trend growth for air travel.” He said the overall picture is one of slowdown in air travel and cargo. “It is perhaps the worst performance since the global financial crisis and was largely driven by the trade war between the US and China.” He pointed out that the airlines have seen profit margins narrow over the years.

Stating that the industry found 2019 to be much tougher, air travel in emerging markets, including India, was stronger — it should have grown 7-8 per cent so far in 2019. “The weakest market of the top-10 was across the Pacific, reflecting the impact of the US-China trade war on travel.”

Not much improvement

He said most of the airline market is driven by 20-odd international airlines, including IndiGo, while the long tail of airlines haven’t seen much improvement during the last 10 years. Debt earnings ratio of these 20-odd airlines are at investment-grade levels, giving resilience to those airlines in case they are hit by any major issue.

Pearce added that the overall slowdown in air travel (revenue passenger kilometer) since early 2018 reflects the damaging impact of the trade war on economic growth and business confidence.

The writer is in Geneva at the invitation of IATA