Protectionism fears sees global airlines drastically cut profit forecasts

A combination of an escalating trade war and increased oil prices saw global airlines cut profit forecasts by 21% as the threat of an industry slowdown looms. According to the International Air Transport Association (IATA), which represents 80% of the world’s air traffic through approximately 290 carriers, December’s forecast of US$35.5 billion has been slashed to a profit of US$28 billion for 2019. At IATA’s general meeting in Seoul. IATA Director general Alexandre de Juniac commented that “Airlines will still turn a profit this year, but there is no easy money to be made,” adding that: “Creeping protectionist or isolationist political agendas are on the rise.”

This was witnessed last Friday, May 31, when stock markets tumbled in the wake of President Trumps shock announcement of tariffs on Mexican goods, a move that some fear will see further escalating trade tensions push the U.S. and other major economies into recession. IATA has voiced its concern regarding trade tensions, noting that several Asian carriers have either grounded or delayed taking delivery of air freighters, a move that could overflow into the commercial jet market. According to Reuters, Passenger capacity growth, which reached 6.9 percent in 2019, is forecast to slow to 4.7 percent this year, with average fares flat following a 2.1 percent decline in 2018

Many airlines have recently managed to cover the cost of their capital through squeezing their expenses and restructuring. However, analysts are concerned that aviation is reaching the end of an extended business cycle. One leading consultant, Peter Harbison, has warned airline CEOs that with such heavy reliance on North America for half of global profits, the current industry’s good fortunes should be seen as a “temporary aberration.”