AsPac airlines to book lower earnings this year

SEOUL – Earnings of airlines operating in the Asia-Pacific region including the Philippines is expected to plunge by 22 percent to $6 billion this year from $7.7 billion last year, according to International Air Transport Association (IATA).

This represents a net profit per passenger of $3.51 and a net margin of 2.3 percent.

“The region is showing very diverse performance. Accounting for about 40 percent of global air cargo traffic makes the region the most exposed to weakness in world trade, and that, combined with higher fuel costs, is squeezing the regions’ profits,” IATA said.

IATA has downgraded its 2019 profit outlook for the global air transport industry to $28 billion from $35.5 billion forecast in December 2018.

Alexandre de Juniac, IATA’s director general and chief executive officer, said 2019 is the 10th consecutive year that the airline industry is in the black.

“But margins are being squeezed by rising costs right across the board – including labor, fuel, and infrastructure. Stiff competition among airlines keeps yields from rising. 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. Airlines will still turn a profit this year, but there is no easy money to be made,” De Juiniac said.

The business environment for airlines has deteriorated with rising fuel prices and a substantial weakening of world trade. In 2019 overall costs are expected to grow by 7.4 percent, outpacing a 6.5 percent rise in revenues.

As a result, net margins would be squeezed to 3.2 percent from 3.7 percent in 2018, while profit per passenger would decline to $6.12 from $6.85.

In 2019, the return on invested capital earned from airlines is expected to decrease to 7.4 percent from 7.9 percent.

“The good news is that airlines have broken the boom-and-bust cycle. A downturn in the trading 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,” De Juniac said.

Total passenger numbers are expected to rise to 4.6 billion this year from 4.4 billion in 2018.

For his part, Philippine Airlines president and chief operating officer Jaime Bautista said PAL is hoping to return to profitability this year after two consecutive years of net loss due to “high operating costs and very stiff competition.

“This year, we hope that we will be able to improve our operations, our profitability, as we are managing capacity. We will reduce flights to destinations where there is excess capacity like Middle East. We will also stop flying to some domestic routes where we are not able to recover all our expenses. We will implement strict cost saving measures so we will at least reduce expenses and be profitable this year,” Bautista said.

PAL Holdings Inc., operator of PAL, managed to trim its net loss to P4.33 billion last year from P7.3 billion in 2017.

On the other hand, earnings of Gokongwei-led Cebu Air Inc. (Cebu Pacific) plunged 50.6 percent to P3.9 billion last year from P7.9 billion due to higher fuel costs and wider foreign exchange losses.