North American Aviation Outlook

Airline Leader

2020 brings more uncertainty than normal as trade disputes and tariffs dampen expectations

North American Airlines face a mixed outlook for 2020 as uncertainty over the grounding of Boeing 737 MAX narrowbodies lingers and the prospects of weakening economic trends continue to grow. There's growing concern that an imbalance between supply and demand will occur once the MAX returns to service, particularly so in the US, which would create pricing pressure.

Another unknown for North American operators is the recently imposed tariffs on Airbus aircraft by the US government. Airlines are warning that the tariffs could ultimately result in higher ticket prices at a time when the potential is for an overcapacity overhang in the market.

  • Uncertainty over the grounding of Boeing 737 MAX and potential overcapacity pose challenges for North American airlines in 2020.
  • Tariffs imposed on Airbus aircraft by the US government could lead to higher ticket prices and further market instability.
  • The US-China trade dispute has affected corporate demand on trans Pacific routes, but long-term growth potential remains.
  • Canadian airlines are working to counter the negative effects of the MAX grounding and uncertain return to service.
  • The US-EU trade spat and potential tariffs could soften demand for air travel and impact the overall economy.
  • The combination of trade disputes, geopolitical tensions, and the reintroduction of the MAX make 2020 a more unpredictable year for the aviation industry.


  • Returning MAX aircraft to the supply chain is an unknown for capacity and fares.
  • Tariffs on EU imports to affect Airbus aircraft already on order.
  • World trade negotiations and potential EU sanctions on US goods increase potential instability.

At the end of 2019, leisure demand was picking up steam as the holiday season got under way and corporate trends remained steady, but the positive momentum is tenuous, and could change as 2020 unfolds.

Trends in the trans Atlantic and trans Pacific markets are uncertain, as global trade rifts could create challenging conditions in the not too distant future.

The grounding of the worldwide Boeing 737 MAX fleet in Mar-2019 created unforeseen headwinds for North American airline operators. At the beginning of 4Q2019 more than 100 jets remained grounded in the region and airlines have faced both cost and revenue challenges from the aircraft's removal from service.

For example, Air Canada was forced to downgauge from the 737 MAX 8 to the Airbus A320 on flights from eastern Canada to California, which is a loss of 23 seats per aircraft, diminishing revenue potential of those flights and resulting in fewer seats over which the airline can spread its costs.

At the same time, American has calculated that the idling of the jets would result in a USD540 million hit to its pretax profits for 2019.

Most airlines in North America have removed the MAX from their schedules through to early 2020, and it remains unclear when the aircraft will resume service. But their re-entry into the market is creating concerns about overcapacity and those concerns are not unfounded.

Data from CAPA and OAG show that US domestic ASKs are projected to rise at a fairly rapid rate for the first few months of 2020. But even when the MAX gets the green light to return to service, it will take a considerable amount of time for North American operators to restore their operations of the MAX to normal levels, which creates challenges in accurately predicting US domestic capacity levels for 2020.

The concern over rising capacity is occurring as the US domestic market remains relatively stable - a trend that remained in place throughout 2019. The domestic remained a point of strength for the US' largest airlines in 2019 and robust leisure demand was driving a strong performance during the last quarter of the year.

However, near the end of 2019 executives at JetBlue Airways have concluded that while domestic demand remained steady, some deceleration in unit revenue was occurring as capacity ticked higher. United's management has remarked that corporate volumes remained steady but were not growing rapidly - in effect, growth was slowing.

Throughout the US-China trade spat, most US airlines have maintained a positive outlook on overall corporate demand. But the dispute did create some pressure in corporate demand on Delta Air Lines' trans Pacific routes in the back half of 2019.

The softness was driven, in part, by tariffs imposed by China in the automotive and manufacturing sectors. At the end of 2019 China aimed to place a 25% tariff on US cars and 5% on auto parts and components. One of the major US auto industry meccas, Detroit, is Delta's second largest hub measured by system seat deployment.

But despite some challenges created by the US-China trade dispute in the Pacific, Delta's outlook for corporate demand remained solid as executives noted that 86% of its travel managers expect to maintain or increase their spend in 2020.

Canada's domestic ASK projections are more tempered for the start of 2020. Both of its largest airlines, Air Canada and WestJet, are working to counter negative effects from removing the 737 MAX from service.

WestJet's MAX jets, which feature a dedicated premium cabin, are a pillar of the airline's strategy to grow its base of corporate customers.

"We want to get back to operating a consistent premium offering for those corporate road warriors and frankly, to improve our presence and penetration of Eastern Canada to the levels that we've been able to manage in the West", said WestJet CEO Ed Sims at the CAPA Canada Aviation Summit in Sep-2019.

Air Canada's management has previously declared that uncertainty over the MAX's return to service has resulted in a complete state of flux for its MAX fleet plan. The airline has also estimated that it could take up to a year from the time reintegration starts for the airline to operate the 52 jets that should have been in operation well before the end of 2020.

Just as uncertainty over the MAX has remained challenging for airlines at the end of 2019, Airbus operators in the US have been evaluating the effects a ruling by the World Trade Organization that allows the US to impose approximately USD7.5 billion in tariffs on imported goods from the EU - including Airbus jets.

The US is levying 10% tariffs on Airbus aircraft, creating headaches for operators that have long-standing order books with the European airframer. CAPA's Fleet Database shows that as of late 2019 Airbus represented 39% of the aircraft on order in the country. As a result, it is not clear who, if anyone, is a winner in this regard.

JetBlue, which has 153 Airbus jets on order, believes the tariffs are extremely detrimental to the company and the airline industry as a whole.

"Our concern is about the way the tariff has been imposed, it was imposed on airplanes that have already been ordered," said JetBlue CEO Robin Hayes. "…Unlike many products, aircraft have a purchase cycle time that is years, in some cases, ahead of when they are taken."

It is too early to determine the effects of the tariffs on US airlines. Airbus has a narrowbody production facility in Mobile, Alabama, and it appears - although it is not clear - that aircraft built there could be exempt from the tariffs. Delta, which has hundreds of Airbus narrowbodies and 42 widebodies on order, has determined that Airbus' US production plant could help mitigate any negative effects of tariffs on narrowbody jets.

"…Mobile is going to be very important for us going forward", Delta CEO Ed Bastian declared. "And yes, that's going to be the focus of our domestic strategy, to be getting our [A]200s or [A]321s via Mobile..."

Mr Bastian acknowledged that working to take jets from the Mobile facility does not help the airline avoid tariffs on Airbus widebodies, "…but we're evaluating options here. And as I said, our goal is to mitigate any potential tariff exposure".

JetBlue's Mr Hayes also remarked that the airline was concerned that there were other complaints in front of the WTO that could lead the EU to issue tariffs "that go in their direction next year [2020]".

A US-EU trade spat could have trickle-down economic effects that could ultimately soften demand for air travel.

Most US major airlines were able to shift point of sale to the US in the busy summer high season of 2019 as European point of sale showed some signs of weakness. If trade tensions between the US and Europe intensify, it could accelerate slowing economies in both regions.

Specific to the Airbus tariffs, there is growing speculation that if aircraft prices rise, airfares will also increase, although it could be tough for operators to push prices up if US domestic capacity continues to grow.

The North American-Trans Pacific aviation market was challenging before the US-China trade dispute, since capacity outstripped demand.

Although US airlines have not publicly cited a lot of dilution in demand due to the trade tensions, they've had to adjust their schedules to Hong Kong in light of the political unrest, which drove a 3.4% decline in United's trans Pacific passenger unit revenue year-on-year in 3Q2019.

However, most of the large US airlines still believe in the longer term growth potential of the region. United expected its 4Q2019 trans Pacific performance to improve and Delta, which posted a 7.6% drop in trans Pacific unit revenue year-on-year in 3Q2019, also believes there is a long term opportunity for growth and profitability improvement in the trans Pacific.

But the threat of intensifying global economic weakness could continue to create short term challenges for North American operators in their international markets, particularly if the US and EU cannot reach a trade pact that is favourable to both regions.

Trade spats and geopolitical flare-ups are nothing new for North American or global operators. But the possibility of those challenges intensifying, along with some airlines working to reincorporate the 737 MAX into their fleets, is resulting in 2020 shaping up to be more of an unpredictable year than normal.