End to US-China trade war key to stronger 2020 for world’s airlines, aviation body says

Danny Lee

Airline profits globally will rise in 2020 after a tough 2019, the International Air Transport Association (IATA) forecast on Wednesday, but only if there is a ceasefire in the US-China trade war to lift the industry’s outlook for the year ahead.

Predicting a stable outlook for the next 12 months, Brain Pearce, the association’s chief economist, said any expectation of higher profits was “contingent on a truce” between the two warring economic superpowers.

The cautiously positive tone masked a softening in global airline profitability in 2019, revised down by 7.5 per cent to US$25.9 billion, with slowing economies and the trade friction the aggravating factors.

“We do see some scope for stability, for a more stable 2020 than we certainly had [this year],” Pearce said at a media event in Geneva.

Airline profits collectively in 2020 will reach US$29.3 billion, a rise of 13.1 per cent, the association predicted, while airlines in Asia-Pacific, who have been most exposed and impacted by the trade war, would improve to HK$6 billion next year.

Alexandre de Juniac, the IATA director general, said trade wars ‘produce no winners’. Photo: AFP

The industry body said it expected stronger economic growth would prevail, as long as there were no new tariffs or reductions.

“Trade wars produce no winners,” Alexandre de Juniac, the IATA director general, said.

For now, the threat of US$160 billion of new tariffs on Chinese goods that could be added by the US from Sunday remains a threat, though Washington and Beijing have signalled this could be delayed as both sides remain in talks to de-escalate and roll back some existing tariffs.

After a tough second half of 2019, Asia-Pacific airlines will end the year banking on US$4.9 billion in combined profit, some US$1.1 billion short of industry estimates six months ago.

The trade conflict has left a mark on Chinese travel habits, with domestic China travel topping IATA research as the biggest growth market of any region worldwide, expanding 8.5 per cent in 2019, helped by a rebalancing of the economy. This came at the expense of trans-Pacific travel, which saw a sharp slowdown, with the ongoing trade issues part of the problem.

US-China trade war ‘to knock US$7.5 billion off global airline profits’, says IATA

For Hong Kong, its airlines have faced their worst challenges in recent memory. The city has been roiled by the pro-democracy protests and flagship carrier Cathay Pacific has been rocked by Chinese pressure earlier in the summer, throwing the airline into turmoil, as it overhauled its management, and issued two profit warnings.

Rival Hong Kong Airlines narrowly avoided going out of business over the weekend, saved by a cash injection from owners HNA Group.

“The industry has found 2019 to be much tougher than we were expecting six months ago in June,” Pearce said.

The IATA pointed to the severity of the trade war on air cargo, and weaker business confidence, forcing it to downgrade its 2019 forecasts “across the board” on demand and airline profitability.

“This has been driven mostly by the impact of trade wars,” Pearce said.

In more welcome news, the price of jet fuel, which is one of the single biggest costs for airlines, is likely to fall next year – which is likely to help struggling airlines such as Hong Kong Airlines as it tries to keep expenses in check.

“The modest recovery in world trade will support profits next year in the region … muted fuel costs will support net profits to go up to US$6 billion and net margins to improve to 2.2 per cent,” the IATA said of the Asia-Pacific airline outlook.

This article End to US-China trade war key to stronger 2020 for world’s airlines, aviation body says first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2019.