The International Air Transport Association (IATA) forecast that the global airline industry will produce a net profit of $29.3 billion in 2020, improved over a net profit of $25.9 billion expected in 2019 (revised downward from a $28 billion forecast in June). If achieved, 2020 will mark the industry’s 11th consecutive year in the black. According to IATA, overall industry revenues are forecast to reach $872 billion (+4.0% on $838 billion in 2019). Also, passenger numbers are expected to reach 4.72 billion (up 4.0% from 4.54 billion in 2019. Moreover, the return on invested capital is forecast to be 6.0% (improved from 5.7% expected in 2019), IATA says in a release.
Commenting on the 2019 performance, the release says that economic performance in 2019 was weaker than had been anticipated at the time of the June forecast. “This aligns with weaker global GDP growth of 2.5% (versus 2.7% forecast in June) and world trade growth of just 0.9% (down from 2.5% forecast in June). These negative developments contributed to softer passenger and cargo demand and corresponding weaker revenue growth, as passenger yields fell 3.0% and cargo yields dropped 5.0% compared to 2018,” the release adds.
“Slowing economic growth, trade wars, geopolitical tensions and social unrest, plus continuing uncertainty over Brexit all came together to create a tougher than anticipated business environment for airlines. Yet the industry managed to achieve a decade in the black, as restructuring and cost-cutting continued to pay dividends. It appears that 2019 will be the bottom of the current economic cycle and the forecast for 2020 is somewhat brighter. The big question for 2020 is how capacity will develop, particularly when, as expected, the grounded 737 MAX aircraft return to service and delayed deliveries arrive,” said Alexandre de Juniac, IATA’s Director General and CEO.
On performance drivers for 2020, IATA says that the regional profit picture is mixed in both 2019 and 2020. Africa, Middle East and Latin America are all expected to lose money in 2019, with carriers in Latin America returning to profit in 2020 as regional economies strengthen. Airlines in North America continue to lead on financial performance, accounting for 65 per cent of industry profits in 2019 and around 56 per cent of aggregate earnings in 2020. Financial performance is expected to improve or remain the same compared to 2019 in all regions except for North America, where expected capacity growth owing to new aircraft deliveries could put pressure on earnings.
North American carriers are expected to post a net profit of $16.5 billion (down from $16.9 billion in 2019). That represents a 6.0% net margin and a net profit of $16.00 per passenger. Similarly, European carriers are forecast to report a $7.9 billion net profit in 2020 (up from $6.2 billion forecast for 2019) as airlines in the region benefit from the opposite pattern of the developments expected in North America. Meanwhile, Asia-Pacific carriers will be helped by the modest recovery in world trade and air cargo, showing a $6.0 billion net profit in 2020 (up from $4.9 billion in 2019) for a 2.2 per cent net margin. Also, Middle Eastern carriers are continuing a restructuring process and announced schedules point to a substantial slowdown in capacity growth for 2020. After very weak economic growth in 2019, which limited local traffic, some rebound is expected in 2020. Restructuring and stronger growth will boost performance. But this will take time and a loss is expected for a third consecutive year, estimated at $1 billion, trimmed from $1.5 billion in 2019.
