IATA chief economist Brian Pearce believes the industry should be braced for more difficult conditions over the next 12 months, amid continued market challenges and the heaviest falls in air freight demand since the financial crisis a decade ago.
Speaking at the Airlines 2050 event in London on 17 October, Pearce flagged that conditions faced by airlines had grown more difficult as costs – notably around fuel and labour – have risen.
«I think what the issue has been is in the last 12 months suddenly the industry has lost its ability to recover those costs and unit revenues have started falling, rather than rising to recover the cost issues that we’ve got,» notes Pearce.
He cites several drivers of change, one of which is the impact of escalating trade wars. «What we have seen in the industry is air cargo has collapsed,» Pearce says. «The size of the air cargo market globally, in volume terms, is 5% or so below where it was last year. We haven’t seen that since the global financial crisis. And yields have come down a similar amount. So the market is probably 10% down.
«Air travel is still growing, although it’s clear there was an inflection point in early 2018,» he says, noting that air travel demand has fallen from the the 7-8% growth levels previously seen.
He suggests there are indicators that, after an unprecedentedly long positive economic cycle, a recession could be around the corner. «The yield curve in the US has been a very clear indicator. It has turned negative six to 12 months before recessions in our industry before. That’s pretty much where we are today,» he says. He also cites dips in business confidence as another signal.
«I think we do need to be very well aware that as well as some of the structural challenges, there is a serious risk of recession, and I think perhaps we’ll only avoid it if we see policy response.
«Business conditions have been getting tougher and I think it’s wise for us to prepare for more difficult business conditions over the next 12 months,» he says…