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            september 17, 2019

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Sino-US trade war means a bleak 2019 for air carriers, says IATA chief


The US-China trade war will cost global airlines US$7.5 billion in lost profits, the International Air Transport Association (IATA) told an aviation conference in Seoul.
"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," said IATA director general Alexandre de Juniac, former CEO of Air France.
"Stiff competition among airlines keeps yields from rising," he said.
IATA's initial 2019 profit picture for the industry set earnings at $35.5 billion. It has since been downwardly revised to $28 billion, which would be $2 billion short of 2018's industry-wide net profit - $30 billion.
Meanwhile costs are expected to rise 7.4 per cent in 2019 - outpacing a 6.5 per cent increase in revenues. "The business environment for airlines has deteriorated with rising fuel prices and a substantial weakening in world trade," IATA said, according to the London's FlightGlobal.
IATA expects Brent crude to average $70 per barrel, compared to $65 per barrel price it projected in previous estimates.
IATA has also trimmed its revenue expectations for 2019 by $20 billion. It now sees industry turnover growing 6.5 per cent to $865 billion.
The biggest change in its outlook since its December forecast was its view of Asia-Pacific airlines making a net profit of $6 billion in 2019.
It first saw the region posting profits in excess of $10 billion this year. The reduction in part reflects the larger exposure carriers in the region have to air cargo, the sector hardest hit by weakening trade and which has slipped back into decline.
It also sees Middle East carriers posting a loss of $1.1 billion this year - having earlier projected the region's operators would be profitable this year. African carriers are again expected to post a loss in 2019, while it has trimmed slightly expectations for Latin American carriers.
"The good news is that airlines have broken the boom-and-bust cycle," said Mr de Juniac. "A down in the trading in environment no longer plunges the industry into a deep crisis.
"But under current circumstances, the great achievement of the industry-creating value for investors with normal levels of profitability is at risk. Airlines will still create value for investors in 2019 with above cost-of-capital returns, but only just," he said.

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