The International Air Transport Association (IATA) has downgraded its 2019 outlook for the global air transport industry from US$35.5 billion to $28 billion on the back of rising costs and slowing demand.

The association says the business environment for airlines has “deteriorated”, with rising fuel prices and a “substantial weakening of world trade” squeezing profit margins.

IATA’s forecast was outlined by chief economist Brian Pearce (pictured) during a media briefing at the association’s Annual General Meeting in Seoul over the weekend.

Commenting on the risks facing the industry, IATA director general and CEO Alexandre de Juniac said: “This year will be the tenth consecutive year in the black for the airline industry. But margins are being squeezed by rising costs right across the board – including labour, fuel and infrastructure. Stiff competition among airlines keeps yields from rising. Weakening of global trade is likely to continue as the US-China trade war intensifies. This primarily impacts the cargo business, but passenger traffic could also be impacted as tensions rise. Airlines will still turn a profit this year, but there is no easy money to be made.”

Overall airline costs are expected to grow by 7.4 per cent – outpacing a 6.5 rise in revenue, with net margins now predicted to come in at 3.2 per cent as opposed to 3.7 per cent in 2018. Profit per passenger will see a big drop to $6.12 from $6.85 last year.

IATA predicts the trend of high fuel prices seen in 2018 will continue through this year at an average cost of $70 per barrel. This is 27.5 per cent higher than 2017’s prices and fuel costs will account for 25 per cent of carriers’ operating costs.

Slower growth in passenger demand has caused some airlines to trim capacity growth to 4.7 per cent, though global traffic is expected to rise to 4.6 billion (up from 4.4 billion in 2018) and passenger yields will likely remain flat following a 2.1 per cent drop last year.

De Juniac also pointed out the external risks facing airlines this year, including political instability in the face of factors such as the continuing US-China trade war.

He said: “Aviation needs borders that are open to the people and to trade. Nobody wins from trade wars, protectionist policies or isolationist agendas. But everybody benefits from growing connectivity. A more inclusive globalisation must be the way forward.”

De Juniac concluded: “Aviation is the business of freedom. For 4.6 billion travellers it is their freedom to explore, build business, or reunite with friends and family. The economic benefit of this is 65 million jobs and a $2.7 trillion boost to the global economy. Aviation is growing responsibly to meet this demand. From 2020, for example, the industry will achieve carbon-neutral growth. And that is on the way to the much more ambitious goal of cutting emissions to half 2005 levels by 2050. We are determined to deliver sustainable global connectivity through aviation.”

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