The worsening US-China trade war and rising costs are putting pressure on airline earnings as the International Air Transport Association (IATA) cut its forecast for 2019 industry profits by more than a fifth.
Net income for 2019 will probably slump to $28 billion, compared with the $35.5 billion forecast in December, according to the industry trade group. That would also represent a decline of about 7% from 2018 as the trade war is expected to hurt cargo and even passenger traffic, said IATA, which represents about 290 airlines that make up more than 80% of air traffic.
“Margins are being squeezed by rising costs right across the board -- including labor, fuel and infrastructure,” IATA Director General and Chief Executive Officer Alexandre de Juniac said in a statement on Sunday. “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.”
IATA is holding its annual meeting in Seoul this weekend in the industry’s biggest gathering since the two crashes in October and March that killed 346 people. The accidents, both involving Boeing Co.’s Max jetliner, have pushed the world’s biggest aircraft maker into one of its biggest crises. That also put the industry’s “reputation on the spotlight,” de Juniac said.
Halting of Boeing’s fastest-selling jet has triggered probes by regulators and calls for compensation from airline customers. The IATA chief didn’t elaborate on the financial impact of the fatal crashes.
Boeing also faces a criminal probe, as well as civil inquiries from the US Congress and the Securities and Exchange Commission for its role in the accidents and close ties to federal regulators. Civil aviation authorities around the world have yet to agree on required fixes and the jet’s re-entry into service. De Juniac said on May 30 that the Max isn’t likely to return to the skies for at least 10 to 12 weeks.
“Trust in the certification system has been damaged -- among regulators, between regulators and the industry and with the flying public,” de Juniac said in a speech on Sunday in Seoul. “While Boeing and the US Federal Aviation Administration are at center stage, the close collaboration of counterpart manufacturers and civil aviation authorities around the world is essential. Any rift between regulators is not in anybody’s interest.”
US carriers including American Airlines Group Inc. have warned of headwinds arising from the industry turmoil. China’s airlines have sought compensation from Boeing as the grounding of its Max jet is on track to result in losses of more than $500 million for the carriers.