Abu Dhabi, UAEWednesday 22 May 2019

Global aviation outlook stable as profit margin holds steady, Moody's says

Carriers' operating profit margins to remain at 8 per cent as passenger traffic rises, fares grow and jet fuel bills decrease

Outlook for next 12-18 months is stable for global airlines, Moody's says. Toby Melville / Reuters
Outlook for next 12-18 months is stable for global airlines, Moody's says. Toby Melville / Reuters

Moody's Investors Service said the outlook for global airlines is stable as passenger traffic rises, fares grow and jet fuel costs drop.

Carriers' operating profit margins are expected to remain steady at about eight per cent over the next 12 to 18 months as higher travel demand, pricing gains and lower fuel costs mitigate the impact of a global economic slowdown, the credit rating agency said in a report.

"Slowing economic growth across regions will pressure passenger demand and revenue growth, but this should be offset by non-fuel cost management initiatives and efforts to align capacity with demand," Moody's said.

The credit rating agency expects global gross domestic product to grow 2.9 per cent in 2019, slowing from growth estimates of 3.3 per cent for 2018. Global passenger traffic is forecast to grow 6 per cent this year, slightly down from 6.5 per cent in 2018, according to the International Air Transport Association. The Middle East is expected to perform “a bit below” that level because of ongoing political turmoil and regional carriers reaching normalised growth after years of massive expansion, IATA's director general Alexandre de Juniac said earlier this month.

Moody's based its outlook for the next 12 to 18 months for the 22 airlines it rates on an assumption of Brent oil prices at $70 a barrel.

The agency would revise its outlook from stable to positive if it expects carriers to maintain operating profit margins above 10 per cent or cut the rating to negative if those margins fell below four per cent, it said.

The growth of disposable incomes, especially in the developing world, will continue to provide a "key pillar of support" for the industry’s performance, Moody's said.

Passenger demand for travel will remain "quite elastic" and pullbacks in growth are expected if Brent oil prices top $80 per barrel while economic growth slows.

The introduction of next-generation aircraft with greater fuel efficiency will help, in the early stages of their entry, to mitigate pressure on airlines' operating costs.

Airlines will face risks to travel demand from unfolding geopolitical events including Britain's exit from the European Union and escalating trade tensions between the US and China that pose a risk to economic growth.

European airlines face an additional risk to earnings and cash flow from potential operational disruptions such as labour action by pilots or air traffic controllers.

"Ryanair (unrated) and Virgin Atlantic Airways appear most susceptible to pilot work actions in 2019," the report said.

Updated: January 24, 2019 08:02 PM