Dubai: Trade tensions, airline bankruptcies, and the grounding of a popular aircraft model — the global aviation industry had its fair share of headwinds to deal with in 2019. Some of it strong enough to upset sector prospects well into 2020.
The grounding of Boeing’s 737 Max model will still hang over the industry, analysts say, adding to other risk factors such as geopolitical uncertainties and stiff competition that will keep denting margins.
In the UAE specifically, flydubai, is likely to continue seeing a “significant impact” on its financials and operations from the grounding of the 737 Max jets, its chairman said recently. The budget carrier reported Dh196.7 million in losses in the first-half of 2019 as its seat capacity dropped, and hence revenue opportunities, from having to ground its 13 Max aircraft. (It is the only airline in the UAE operating 737 Max aircraft.)
Meanwhile, Emirates airline said in November it expects the airline industry to continue facing headwinds, and cited competition as a challenge.
John Strickland, Managing Director of London-based JLS Consulting, agreed that there are lots of geopolitical issues that will impact the industry in 2020.
As for the (grounded) elephant in the room, Strickland said that even if 737 Maxs are re-certified in early 2020 by national regulators, “it will take well over a year for all aircraft to be delivered or restored from grounding, leaving many airlines short of capacity.”
Boeing’s 737 Max model has been grounded across the world since March 2019, following two fatal crashes to jets belonging to Lion Air and Ethiopian Airways. Boeing had earlier said that the process of updating the aircraft software and getting it re-certified to fly should be completed by the end of 2019.
This has since been delayed to early 2020, but is now completely uncertain as the US Federal Aviation Administration, which is in charge of re-certification in America, refuses to give a timeline.
“The 737 Max ongoing grounding is undoubtedly the most significant factor affecting a growing number of airlines,” said Strickland. Their chances of raising their share of market capacity has elapsed “due to the increasing number of aircraft that were due to be delivered.”
From a broader perspective, next year is likely to be a mixed bag for airlines worldwide. According to the latest report from the International Air Transport Association (IATA), carriers in Latin America are expected to return to profitability in 2020 as regional economies strengthen.
Elsewhere, financial performance is projected to improve or remain the same compared to 2019 in all regions, except for North America where seat supply might exceed demand.
In the Middle East specifically, restructuring of some airlines and stronger growth will boost performance, but this will take time. Collectively, Middle Eastern airlines are expected to report a total loss of $1 billion.
Among challenges facing the industry is trade tensions, as the world’s two largest economies, the US and China, continue to renegotiate their trade deals and tariff each other’s exports.
“IATA has and will continue to take a strong stance that we are better off with borders that are open to people and to trade,” said Alexandre de Juniac, director-general and CEO, as he reiterated a warning against trade tensions. “Trade wars produce no winners.”
Economics and geopolitics aside, there’s one more factor that will gain traction and impact the aviation industry in 2020 — flight shaming. The term became popular this year as more activists around the world demand action to combat climate change.
And it’s not just a group of activists. Growing discussions on carbon emissions and the effect that it has on climate, have made more people conscious of their carbon footprint and their use of different transport options.
IATA addressed that very issue, admitting that more work needs to be done to reduce carbon emissions from the industry. The Association called for governments to focus on policy solutions that will make flying sustainable.
Bringing up sustainability
“In the immediate term, that means focusing on sustainable aviation fuels, which have the potential to cut our carbon footprint by up to 80 per cent,” de Juniac said, but defended the aviation industry from allegations that it was a key culprit in carbon emissions.
He added that the aviation industry is committed to carbon-neutral growth from 2020, and that the industry accounts for 2 per cent of global man-made carbon emissions.
IATA in October said that it was getting pressure on climate change, and acknowledged that flight shaming might even weigh on growth.