This article first appeared in The Edge Financial Daily on June 3, 2019

SEOUL: The International Air Transport Association (IATA) has cut its 2019 net profit forecast for the global air transport industry by 21% on the back of a deteriorating business environment, amid rising fuel prices and a substantial weakening of world trade.

It now projects net profit to come in at US$28 billion from US$35.5 billion forecast made in December 2018. This is below a recorded US$30 billion in 2018.

Speaking to reporters after the opening of the 75th IATA annual general meeting here yesterday, its director-general and chief executive officer Alexandre de Juniac said overall costs in 2019 are expected to grow by 7.4%, outpacing a 6.5% rise in revenues.

“(Airlines’) margins are being squeezed by rising costs right across the board including labour, fuel and infrastructure. Stiff competition among airlines keeps yields from rising.

“As a result, net margins are expected to be squeezed to 3.2% from 3.7% in 2018. Profit per passenger will similarly decline to US$6.12 from US$6.85 in 2018,” he said.

“Airlines will still turn a profit this year, but there is no easy money to be made,” de Juniac added.

This year passenger yields are expected to remain flat after a 2.1% fall in 2018. However, total passenger numbers are expected to rise 4.5% to 4.6 billion this year from 4.4 billion in 2018.

On a regional basis, Asia-Pacific airlines will deliver a net profit of US$6 billion (RM25.14 billion), down from US$7.7 billion in 2018.

“That represents a net profit per passenger of US$3.51 and a net margin of 2.3%. The region is showing very diverse performance,” said de Juniac.

According to IATA, passenger demand growth is expected to be more robust than cargo this year.

IATA chief economist Brian Pearce said the airline grouping expects global trade to continue to weaken as the US-China trade war intensifies.

“This primarily impacts the cargo business, but passenger traffic could also be impacted as tensions rise,” he noted.

After an exceptional performance in 2017 (up 9.7%), cargo demand growth is anticipated to be flat in 2019 at 63.1 million tonnes because of the impact of higher tariffs on trade. Cargo demand growth slowed to 3.4% or 63.3 million tonnes in 2018.

Cargo yields are also expected to be flat in 2019 after a 12.3% improvement in 2018, as cargo load factors fall further, and supply-demand conditions weaken.