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The International Air Transport Association’s (IATA) Chief Economist, Brian Pearce, paints a moderating economic picture for airlines in 2019.  In a recently published forecast, Mr. Pearce cites several macro-economic factors creating some uncertainties.  Nevertheless, in spite of Brexit, trade wars, and some evolving geo-political uncertainty, cautious optimism remains intact for 2019.

Several Key Points Looking Forward

IATA’s “Airline Industry Outlook 2019” provides extensive data to reach the several conclusions.  Even though citing flattening expectations, business confidence and industry equity prices remain relatively solid.  However, airlines are beginning to feel some cost pressures, particularly relating to tight labor conditions and fuel price uncertainty.  Regardless of these and other factors, global air travel momentum remains strong.

Regional Drivers

Unsurprisingly, Asia in general and India and China in particular continue to underpin a very strong outlook for the entire Asia-Pacific region.  As previously noted by Avi8ion in earlier blogs, growing middle classes in China and India continue to reshape air travel demand.  Specifically, China’s domestic market continues as a key driver of global economic forecasts.  Although India’s domestic market growth remains very robust, it’s impact on global fundamentals remains limited.  However, increasing demand in this market segment will accelerate rapidly in the coming years as India’s demographics change.

IATA Airline Fundamentals

Mr. Pearce also provides some interesting data to support his conclusions.  For example, even with tempered expectations this year, levels of airline economic performance remain above recent trends. As previously cited, cost pressures are forecast to remain, particularly in labor and fuel.  However, airlines continue to manage these factors to produce solid financial returns.  A key element driving this continued healthy outlook is robust load factors and capacity management by airline leaders.

Finally, improved trending in the industry’s Return on Invested Capital (ROIC) should continue in 2019.  Are all skies blue with everyone enjoying tailwinds?  Of course not. However, airlines are generally managing through this recent uncertainty with great acumen.  Individual airline challenges may garner headlines, but healthier players are rapidly filling these voids and reallocating assets to meet demand.  For a related view, please view Deloitte’s 2019 Global Aerospace and Defense Industry Outlook on Avi8ion’s website.

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