Better days ahead for region’s airlines
The last 12 months have not been the best of times for Asia-Pacific airlines, but the International Air Transport Association (IATA) believes 2020 will be better. Despite higher forecast profits for the world’s carriers, the devil could be in the detail with some problematic global issues a long way from resolution. Associate editor and chief correspondent, Tom Ballantyne, reports from Geneva.
Despite trade wars, fragile global economic conditions and political unrest in several cities across the globe, the International Air Transport Association (IATA) has forecast airlines worldwide will turn in a collective net profit of US$29.3 billion in 2020, up from $25.9 billion in 2019. Read More »
If correct, it will be the industry’s 11th consecutive year in the black. IATA also forecast the struggling air freight sector would grow by 2% in the next 12 months.
IATA said airlines were expected to earn a return on invested capital of 6%, up from 5.7% last year and also report a lift in net profit margins to 3.4%, from 3.1%. Average net profit per passenger was predicted to increase to $6.20, from $5.70, with overall performance boosted by a decline in the average price of fuel.
“Slower than expected global economic growth in 2019 contributed to lower energy demand, with crude oil prices averaging around $65 per barrel (Brent), compared with $71.60 in 2018. Oil supply also is plentiful, which boosted inventories. As a result, oil prices are expected to dip in 2020 to $63 (Brent) per barrel,” said IATA’s chief economist Brian Pearce. “The forecast industry fuel bill of $182 billion will represent 22.1% of expenses, down from $188 billion, or 23.7% of expenses, in 2019.”
Speaking at IATA’s Global Media Days in Geneva in early December, Pearce said Asia-Pacific carriers would experience a modest recovery in world trade and air cargo. The association forecasts the region’s airlines would produce a $6 billion net profit in 2020, compared with $4.9 billion in 2019, and earn a 2.2% net margin for the coming year.
Asia remains the manufacturing centre of the world and revenues from transporting much of those goods are a significant proportion of sales for many of the region’s airlines, IATA said.
“But the trade war is assumed just to be on hold. Trade tariffs are not reversed. Consequently, the rise in trade and cargo volumes is moderate. The net profit per passenger is anticipated at $3.34,” it said.
IATA director general and CEO, Alexandre de Juniac, said a combination of various global factors had created 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 2019 will be the bottom of the current economic cycle and the forecast for 2020 is somewhat brighter,” he said.
“The big question for 2020 is how capacity will develop, particularly when, as expected, grounded 737 MAX aircraft return to service and delayed deliveries arrive.”
|IATA urges crackdown on shippers illegally transporting counterfeit lithium batteries
Consumer demand for lithium batteries is growing by 17% a year, with the number of incidents involving mis-declared or under-declared batteries transported as air cargo also rising as a result of demand, said IATA.
“Dangerous goods, including Lithium batteries, are safe to transport if managed according to international regulations and standards,” IATA said. “but we are seeing an increase in the number of incidents in which rogue shippers are not complying.
“The industry is uniting, including the Global Shippers Forum and the International Federation of Freight Forwarders Association, to raise awareness of the need to comply. This includes the launching of an incident reporting tool so information about rogue shippers is shared.
“And we are asking governments to get much tougher with fines and penalities,” IATA said.
Currently, air cargo is scanned for items that pose a risk to security such as explosives but not for safety such as lithium batteries.
Given the state of the market, the modest optimistic projections for 2020 may come as a surprise to the industry, but Pearce said IATA’s working assumption for the forecast is similar to those of the International Monetary Fund (IMF) and the Word Trade Organization (WTO).
The prediction is that ahead of the U.S. elections in November 2020, there will be “a truce” in the U.S./Sino trade war, with no reduction in existing tariffs but with no additional tariffs implemented. “If so, then stronger economic growth in 2020 will produce a modest rise in international trade growth, from 0.9% in 2019 to 3.3% in 2020,” said Pearce. This trend, he said, would be moderately supportive for the air cargo business.
Pearce delivered other news that was not quite as welcome as the 2020 profit forecast. He said only a relatively small number of airlines had driven an improvement in aggregate industry level profitability. Remarkably, while IATA has nearly 300 members, ranking carriers by economic profit showed only around 30 carriers had been responsible for improvements in profits in the last ten years.
“There is a long tail of airlines barely breaking even and a group making significant losses,” he said. “For this long tail of airlines, performance has not improved in the past decade. This is why there has been a series of airline failures in the past two years, despite relatively good financial results at the aggregate industry level. There is work to be done to move the industry into a more financially sustainable position.”
IATA did not identify individual airlines that are struggling, but examples in the Asia-Pacific include Malaysia Airlines, Thai Airways International, Garuda Indonesia and Air India.
IATA said air traffic growth would continue but at a slower pace than the historical average in the short-term. Passenger numbers are expected to reach 4.72 billion in 2020, up 4.0% or 4.54 billion, from 2019.
Freight tonnes carried will recover to 62.4 million, a 2.0% increase over the 61.2 million tonnes carried in 2019 – the lowest result in three years. Stronger economic growth should support passenger traffic (RPKs) growth of 4.1%, similar to 2019 at 4.2%, but below historical trends.
At the annual Global Media Days, it was clear IATA is putting a renewed focus on environmental issues. De Juniac said airlines had done a good job with their sustainability achievements but repeated his belief they had not done so well in getting the good news out to the general public.
IATA has asked the European Union to support aviation’s energy transition to sustainable aviation fuels (SAF) as part of the bloc’s recently launched Green Deal.
“Aviation has high hopes for the European Commission’s Green Deal. We want to be part of Europe’s building of a new energy economy. We will do everything we can to make sustainable aviation fuels a priority for aviation in Europe and around the world,” said de Juniac, who recently took part in a Sustainable Innovation Forum that ran alongside the UN COP25 Climate Talks in Madrid.
Since SAF were certified for commercial use in 2009, more than 215,000 flights have taken off using some blend of this low carbon fuel. The industry believed achieving 2% of global jet fuel from non-fossil sources by 2025 could create a tipping point for production and cost of SAF. The 14 production facilities operating, under construction or in the final stages of financing and planning would take the industry a long way towards the 2% goal, IATA said.
“More progress is needed. Aviation should be a policy priority because it does not have a near-term electrification option. Traditional energy suppliers must prioritize investment in SAF,” de Juniac said.
IATA emphasised SAF were critical to the industry’s long-term efforts to cut its emissions to half 2005 levels by 2050. The industry’s strategy to achieve this goal includes significant investment in new technology aircraft, research into electric and hybrid propulsion, programs to improve operational efficiency, and the world’s first global sectoral climate mechanism, CORSIA (Carbon Offsetting Reduction Scheme for International Aviation).
|Industry’s new gender balance initiative attracts 59 airlines
IATA’s 25by2025 gender balance in aviation campaign, launched in September this year, has recruited 59 airlines to its cause, representing 30.24% of passenger traffic. The 59 signatories are Europe (36), Asia-Pacific (10), the Americas (7) and Africa and the Middle East (6).
The goal of 25by2025 is to increase the number of women in senior airline positions to a minimum of 25% against current metrics and to apply the same goals for women in under-represented jobs at airlines, including cockpit crew, operations and MRO.