Comment
Profits up for 2020 predicts IATA
December 1st 2019
The International Air Transport Association’s (IATA) somewhat unexpected prediction, announced at press time, that the world’s airlines will collectively make more money in 2020 than in 2019 was certainly welcome. Read More » IATA forecasts a net profit of US$29.3 billion for the global airline industry next year, up from $25.9 billion in 2019.
For the Asia-Pacific specifically, the news was even better. The region’s airlines will report a net profit of $6 billion for the full 2020 year against a profit of $4.9 billion in 2019. Given global economies remain fragile, social unrest is rife in many countries, trade disputes abound and severe and extreme weather events are on the increase, forecasts are extremely difficult to make.
So the optimism engendered by IATA’s projections for next year should be considered in context and tempered by several factors. Firstly, the forecast is supported by a belief there will be a “truce” in the U.S./Sino trade war in the run up to the U.S. presidential election next November.
Given the roller-coaster nature of the disagreement, there is no guarantee of a temporary slowdown in the tit-for-tat tariff war. It also is expected the price of oil will be stable and even drop. Again, hardly a sure bet.
And then there are ramifications to consider following IATA’s news that profits collectively produced by the airline industry in the last ten years were generated by only about 30 of IATA’s almost 300 strong airline members.
“There is a long tail of airlines barely breaking even and a group making significant losses. For this long tail of airlines, performance has not improved in the past decade. This is the reason we have seen a series of airline failures in the last two years, despite relatively good financial results at the aggregate industry level,” said IATA’s chief economist, Brian Pearce.
“There is work to be done to move the industry to a more broadly financially sustainable position.”
Pearce is right. The vast majority of the world’s airlines need to make their operations financially sustainable. Observers of the Asia-Pacific industry would have no problem identifying carriers that are part of that long tail.
For some of the region’s airlines, obstacles to greater profitability will be temporary. A case in point is Cathay Pacific Airways. Its declining passenger demand is a result of civil unrest in its home hub in Hong Kong, a situation that is out of its control. Several airlines in China and elsewhere in the region have been hit by the grounding of the 737 MAX, country-to-country political disputes and foreign currency fluctuations.
In the coming year, it is expected the volatile operating conditions for Asia-Pacific airlines will continue, whatever the forecasts may be. Longer-term, the future of the region’s carriers is bright, but they would do well to prepare for another tough 12 months despite IATA’s positive predictions.
TOM BALLANTYNE
Associate editor and chief correspondent
Orient Aviation Media Group
