Why it's not all doom and gloom in the aviation sector

Spend billions on aircraft, fuel and running costs, face natural hazards, terrorist threats and global economic uncertainty and, if you still want to run an airline, you’ll be rewarded this year with a modest profit of £4.83 per passenger.

That’s what the world’s carriers will make on average on each sale in 2019 according to Iata, which predicts a fall from last year’s figure of £5.41. The association says average profit margins will drop from 3.7% last year to 3.2% in 2019, while the world’s airlines will see total after-tax profits fall to £22 billion, downgrading December’s £28 billion forecast for the year.

The good news is 2019 will be the tenth consecutive year the industry is profitable, but speaking at Iata’s gathering in Seoul, director-general and chief executive Alexandre de Juniac said that while carriers generally would be in the black this year, “there is no easy money to be made”.

He points to rising oil prices and a threatened US-China trade war as key factors in inflating costs and dampening demand, but also mentions one glaring fact – that “stiff competition among airlines keeps yields from rising”. Put simply, there are too many airlines to enable good profitability; bargains for consumers in the short term are not good for the industry long term.

In the US, the disappearances of Continental, Northwest and US Airways into (respectively) United, Delta and American Airlines may have pushed up fares, but they have ensured three profitable carriers no longer struggle. Iata predicts North American carriers will make an average of £11.67 per passenger – a figure it says is “underpinned by consolidation”.

Contrast this with Europe, where net profit per passenger is expected to drop to £5.33 this year. Despite this being the industry’s second-strongest result, Iata says Europe’s airlines have the highest breakeven load factor – the average amount of seats they need to fill before a profit is made – at 70%. This, it says, “is caused by low yields due to the highly competitive aviation area”, combined with high costs and factors such as air traffic control strikes and delays.