CAPA airline profit outlook: MAX "ungrounding" impact complicates

The Jan-2020 update of the CAPA world airline industry airline operating margin model modestly raises the forecast margin for 2020. It also introduces a 2021 forecast for the first time, modelling a small decline.

According to the IMF's 21-Jan-2020 economic outlook, world GDP growth slowed into 2019, but may have bottomed out. This, together with a narrowing of the multiplier between airline passenger traffic growth and GDP growth, created the lowest RPK growth for a decade in 2019.

Rising GDP growth should generate accelerating RPK growth in 2020 and 2021, although not at the rates enjoyed for much of the 2010s.

The 737 MAX grounding complicates the forecasting of fleet growth, the indicator of supply in the CAPA model. Boeing's recent announcement of further delays to the aircraft's return will moderate supply growth this year, but creates a potential capacity overhang for 2021. Meanwhile, the period of relative oil price stability is expected to continue.

Overall, with modest year-to-year fluctuations (and subject to macroeconomic and geopolitical risks), the CAPA model forecasts an extension of the unprecedented period of operating margins in the 5%-6% range that previously had marked cyclical peaks.

(Note: This analysis was prepared without clear knowledge of the likely impact of the Wuhan-originated coronavirus)