Economic development worldwide is getting a significant boost from air transport. But slowing economic growth, trade wars, geopolitical tensions and social unrest, in addition to Brexit uncertainties all came together to create a “tougher than anticipated” business environment for airlines.
Yet, the industry managed to achieve a decade in the black, as restructuring and cost-cutting continued to pay dividends. It appears that 2019 will be the bottom of the current economic cycle and industry experts forecast that 2020 will be somewhat brighter.
Global airline industry may produce a net profit in excess of $29bn this year, improved over a net profit of $25.9bn that would have been achieved in 2019; International Air Transport Association (IATA)’s recent forecast show.
This will be on the back of global GDP growth improving moderately this year with the support of accommodative monetary and fiscal policies.
Analysts say consumers will see a substantial increase in the value they derive from air transport in 2020 including stability in what they pay airlines, after allowing for inflation.
The average return fare (before surcharges and tax) of $293 in 2020 is forecast to be 64% lower than in 1998, after adjusting for inflation, IATA data show.
The number of new destinations is forecast to rise further this year, with trip frequencies up too; both boosting consumer benefits.
The association expects 1% of world GDP to be spent on air transport in 2020, totalling $908bn. Revenue Passenger Kilometres (RPK) growth is forecast to remain stable close to the average of 2019 this year on the back of moderate global economic backdrop.
On the other hand, world trade is expected to rebound this year following a weak 2019. This should support a small rebound in air cargo volumes.
Economic development worldwide is getting a significant boost from air transport. This wider economic benefit is being generated by increasing connections between cities – enabling the flow of goods, people, capital, technology and ideas – and falling air transport costs. The number of unique city-pair connections is expected to exceed 23,000 in 2020; more than double the connectivity by air, some 20 years ago. The price of air transport for users continues to fall, after adjusting for inflation. Compared to 20 years ago, real transport costs have more than halved, an economics report showed. “The big question for 2020 is how capacity will develop, particularly when, as expected, the grounded 737 MAX aircraft return to service and delayed deliveries arrive,” points out Alexandre de Juniac, IATA’s Director General and CEO.
Chicago-based Boeing’s best-selling 737 MAX has been grounded since March this year following two fatal crashes in Indonesia and Ethiopia within five months that killed 346 people.
The planemaker is temporarily halting production of its grounded 737 Max after the Federal Aviation Administration (FAA) said last week it would not approve the plane’s return to service before 2020.
More than 700 Max jets are now grounded worldwide. It is the first time in 20 years that Boeing has halted 737 production and the move could have significant repercussions for the US economy.
So, what’s in store for the aviation industry in 2020?
As of September last year, US President Donald Trump imposed tariffs on more than $360bn of Chinese goods. China responded with tariffs on more than $110bn of US products.
China manufactures a large number of aircraft parts, and has long-term partnerships with planemakers including Airbus. Any escalation in trade war between the US and China could threaten exports from the Asia’s largest economy and have a knock-on effect on aviation industry providers around the world.
De Juniac said, “We support $2.7tn of economic activity, equivalent to 3.6% of global GDP. “Yet in spite of all the wealth we have created for the world, profitability has always been a challenge.
It is really only since the end of the Global Financial Crisis that the airline industry has achieved a stable stream of profits.
“It is encouraging to see that we can expect 2020 to be a better year. But it is worth emphasising the point about the airlines that are driving industry profitability. The contribution of the top 30 is absolutely disproportionate. There are many airlines struggling to keep revenues ahead of costs. And that is why we are so adamant to pursue policies focused on efficiency with governments.”
Many say 2020 may also throw up challenges to the aviation industry in terms of airport capacity and skills shortage around the globe.
Capacity is critical at numerous large airports around the globe. Many airport systems worldwide have either exceeded capacity or struggling to cope with demand.
According to IATA, more than 200 airports across the world are “Level 3” slot-co-ordinated – meaning they don’t have enough capacity to meet current high demand.
Lack of skills is another big challenge facing the industry. Boeing forecasts global demand for 800,000 new pilots – double the current available workforce – and 98,000 new business aircraft pilots in the next 20 years. It also predicts a significant shortage of technicians as manufacturing and production increase to meet global demand.
n Pratap John is Business Editor
at Gulf Times
A man walks inside the Chhatrapati Shivaji International Airport in Mumbai. Many say 2020 may throw up challenges to the aviation industry in terms of airport capacity and skills shortage around the globe. Capacity is critical at numerous large airports around the globe.
