Airlines Cut Profit Forecast By Billions on Protectionism, Fuel Fears

Airlines

Airlines are globally facing the threat of higher fuel costs and rising trade tensions, according to the International Air Transport Association, which this weekend downgraded its 2019 outlook for air transport industry profit by $7.5 billion. 

The International Air Transport Association said it was cutting the outlook to $28 billion in profit from the $35.5 billion that was forecast in December.

“The business environment for airlines has deteriorated with rising fuel prices and a substantial weakening of world trade,” said the group in a statement on Sunday.

The group’s director general and chief executive, Alexandre de Juniac, warned that “creeping protectionist or isolationist political agendas are on the rise,” posing a risk to air travel and transport business. 

“They threaten to compromise the value our industry creates. For aviation to be a catalyst of prosperity, borders must be open to people and to trade,” said de Juniac in prepared remarks. “Aviation needs borders that are open to people and to trade. Nobody wins from trade wars, protectionist policies or isolationist agendas. But everybody benefits from growing connectivity. A more inclusive globalization must be the way forward,” said de Juniac.

Though 2019 is slated to be the 10th year in row in the black for the industry, said the group, increasing labor, fuel, and infrastructure costs — as well as cut-throat competition — are squeezing business. Fuel costs alone will make up a quarter of operating costs, said the group, up from 23.5% last year.

This year costs are forecast to rise by 7.4%, said the group, faster than an expected 6.5% increase in revenues. Net margins will likely get choked to 3.2% from 3.7% in 2018, the group said, and profit per passenger will fall to $6.12 from $6.85 in 2018.

And trade woes are adding to the burden, the International Air Transport Association said.

“Weakening of global trade is likely to continue as the US-China trade war intensifies. This primarily impacts the cargo business, but passenger traffic could also be impacted as tensions rise. Airlines will still turn a profit this year, but there is no easy money to be made,” said de Juniac.

The air travel association, which represents some 290 carriers, held its yearly meeting in Korea over the weekend.

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