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Rising fuel prices and issues with global trade are greatly weakening the business environment for airlines, IATA announced.
According to forecast, “in 2019 overall costs are expected to grow by 7.4%, outpacing a 6.5% rise in revenues. As a result, net margins are expected to be squeezed to 3.2% (from 3.7% in 2018)”.
“Margins are being squeezed by rising costs right across the board—including labor, 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,” said Alexandre de Juniac, IATA’s Director General and CEO.
IATA projects that in 2019 the return on invested capital earned from airlines is expected to be 7.4% (down from 7.9% in 2018). Although it still exceeds the average cost of capital (estimated at 7.3%), the buffer is extremely thin.
Not to be omitted and Boeing 737 MAX grounding. Although IATA did not mention this issue, there are no doubts that planes banned to fly significantly contribute to airlines’ operations and profits. Delays in delivery, lack of free aircraft to substitute for non-operable MAX. The 2019 looks really miserable, though.