Supportive central bank and fiscal policies has lessened the risk of air transport suffering an economic decline.
By Patrick Appleton
The International Air Transport Association (IATA) has moved to reduce airline fears of a recession in 2020.
Presenting the IATA industry outlook at IATA’s Global Media Day in Geneva, Chief Economist Brian Pearce said supportive central bank and fiscal policies worldwide has lessened the risk of an economic decline.
Forecasts expect the global airline industry to produce a net profit of $29.3 billion in 2020, improved over a net profit of $25.9 billion expected in 2019. The latter is revised downward from a $28 billion forecast in June.
Airlines suffered a difficult year in 2019 as trade wars had a significant effect on market demand.
Cargo is a leading indicator of how the industry is performing, and in 2019 we had a pretty miserable year
Global tensions have affected passenger travel since 2018, while air freight fell by 5% overall—the worst performance since the 2008-9 global financial crisis.
“Cargo is a leading indicator of how the industry is performing, and in 2019 we had a pretty miserable year,” Pearce said.
As a result, IATA has revised revenue passenger kilometer (RPK) growth estimates from 5% to 4.2% for 2019. Freight tonne kilometers—which had been expected to hold flat—are estimated to decline by 3.3%.
IATA predicts that a slight increase in economic growth and stable fuel prices will help industry RPK growth remain close to current levels at 4.1%, while cargo is expected to experience 2% positive growth compared to a 3.3% decline in 2019.
Other positive developments presented in the outlook include increased connectivity, with airlines connecting more cities than ever and at a lower cost. IATA forecasts that this will rise above 23,000 for the first time in 2020.
Emerging markets are experiencing the strongest growth in air travel, with China leading the way at 8.5% year-on-year from October 2018 to 2019.
Airlines also continue to generate value for the supply chain, but profit margins have narrowed since 2016.
Data from 2019 through Q3 shows that the industry appears to have stabilized margins at half the level of the 2015-16 peak, but this is still above pre-2015 performance.
Although the risk of recession has been downplayed, IATA forecasts—which also predicts better global GDP growth in 2020—are based on a “trade war truce” ahead of next year’s US election.
In addition, a stabilizing of fuel prices would benefit carriers. IATA predicts oil prices to remain “relatively low” at an average of $63/barrel for Brent crude in 2020.