“Air travel has never been such a good deal”, says IATA CEO

The International Air Transport Association (IATA) has revealed its predictions for the year ahead.

Basing its forecast on the recent dip in oil prices and an uptick in the passenger numbers the organisations believe the industry is on track for a bumper year, expecting aviation to make USD 35.5 billion in profit during 2019.

That eye catching total is a small increase on the expected USD 32.3 billion haul to be generated by the end of this year and means that the industry is looking the tenth consecutive year of profit.

“We are cautiously optimistic”

Commenting on the reasoning behind the figures, Alexandre de Juniac, IATA’s director general and CEO, said: “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. So 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.”

Fuel

The 2019 industry outlook is based on an anticipated average oil price of USD 65 per barrel (Brent) which is lower than the USD73 per 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 owing to the impact of low-sulfur environmental measures undertaken by the marine sector that have increased demand for diesel (which competes with jet fuel for refinery capacity).

However, jet fuel prices are expected to average USD 81.3 per barrel in 2019, lower than the USD 87.6 per 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).

Passengers

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 USD 606 billion (up from USD 564 billion in 2018).

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.

“Air travel has never been such a good deal for consumers”

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 labor markets, and it is expected that unit labor 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 kilometers/employee.

Cargo

The 3.7% annual increase in cargo tonnage to 65.9 million tonnes is the slowest pace since 2016, reflecting the weak world trade environment impacted by increasing protectionism. Cargo yields are expected to grow by 2.0%. This is well below the exceptional 10% yield growth in 2018. It does, however, continue the recent strengthening of the cargo business, since cost increases are lower. Overall cargo revenues are expected to reach USD 116.1 billion (up from USD 109.8 billion in 2018).

“Air travel has never been such a good deal for consumers. Not only are fares staying low, the options for travellers 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.