Airline Industry: demand and
profitability under pressure — June 2019

IATA presented its midyear economic update of the global airline industry at its AGM at the beginning of June (held this year in Seoul). Traffic in 2018 looks to have grown by 7.4% in RPK terms continuing a strong above-trend rate of 6% a year since the last peak in 2008. However, the industry association slashed its forecasts for profitability by 27% for 2019 — the fifth year of profits' decline since the 2010 peak. Should the industry expect a cyclical downturn?

In 2018 the industry generated an increase in revenues of 7.6% on the back of a 6.1% increase in capacity. Passenger load factors continued to rise, up by 0.4 percentage points to a record 81.9%. Unit revenues rose helped by a 12% jump in cargo yields — total revenues increased by nearly 8% to $812bn — but airlines could not fully recover the increase in fuel costs. Oil prices increased — Brent Crude averaged $71.6/bbl in the year up by 30% from $54.9 in the prior year — and total costs were up by 9.6% year on year. Operating profits for 2018 reached $47bn representing a margin of 5.8% but were 17% down from the level achieved in 2017 — and 15% below IATA’s estimate made in December 2018. Net profits are estimated at $30bn down from $37.6bn in the previous year, reflecting a 3.8% margin.