Airline chief financial officers and heads of cargo expect the air cargo environment to remain weak throughout the next year, according to a survey conducted by the International Air Transport Association (IATA) in July.
While the passenger side has been experiencing growing demand, the industry’s overall profitability is still being dragged down by the smaller cargo side. Industry leaders attributed cargo’s current state to rising input costs and softness in the market. Their pessimism about the near future was colored by fuel price volatility, exchange rate fluctuations and increased inflationary pressures.
“Profits in the second quarter of 2019 were weaker compared to the same period last year and the industry is expecting only modest improvement over the coming 12 months,” according to the report. “Just 35 percent of respondents are expecting profitability to improve.”
These results reflect growing pessimism in the often optimistic industry. The number of respondents expecting profitability to improve over the next 12 months is down from 46 percent in April, an 11 percent fall in just a few months.
Despite respondents easing expectations, some mild profit expansion may be in the cards for the year ahead.
“Respondents continue to expect economic activity to be soft while fuel price volatility and geopolitical developments are both seen as key risks to the outlook,” the report reads. “Overall, despite easing this quarter, the weighted forward-looking score remains slightly above 50, indicating expectations for a modest improvement in profits over the coming year.”
About 70 percent of survey respondents reported declining or stable profitability numbers during the second quarter. As a result, the weight backward-looking score to fall to its lowest position since July 2012, according to the report. This came after about four quarters of weak scores.
In terms of demand, 47 percent of respondents reported declining air cargo volumes in the second quarter of 2019, the largest share since October 2012. However, 34 percent of respondents saw improvement during the second quarter. This is up from 25 percent in the previous study, according to the release.
“More importantly, respondents became less optimistic about the outlook, as only 34 percent expect freight volumes to increase in the coming period compared to 54 percent in April survey,” the report reads. “The expectations of further deterioration more than doubled compared to April survey (13 percent versus 28 percent).”
Along the same vein, cargo yields also continued to fall. The number of respondents reporting higher yields plummeted to 6 percent compared to 23 percent in the previous survey. Forward expectations also dropped.
Still, about 60 percent of respondents reported increasing employment levels, according to the survey.
“Looking forward, despite the downbeat expectations for profitability and cargo demand, 60 percent of respondents expect to increase employment in the next 12 months, up from last quarter’s survey (54 percent),” the report reads. “The percentage expecting to cut employment remained stable at 11 percent.”
Much of the employment growth will likely originate from the passenger side, but strong employment numbers in light of slipping profitability suggest that the air cargo industry may be a little more hopeful than its letting on.