CAPA airline profit outlook: the cycle is slowing

The Jan-2019 update of the CAPA world airline industry airline operating margin model cuts the forecast margin for 2019. It also introduces a 2020 forecast for the first time, modelling a decline for that year, which would be the fourth year running of falling margins from 2016's cyclical peak.

This is the second successive time the six-monthly update of the model shows cuts to forecast margins, following four previous upgrades. This is the result of a softening global economic outlook, reflected in recent cuts to IMF GDP growth forecasts, which drive slower RPK growth in the CAPA model. Although an expected small decline in annual oil prices may be positive for airline costs, this is unlikely to balance weaker traffic growth.

Nevertheless, and in spite of global GDP and RPK growth expected to be below long term trend rates, airline operating margins are forecast to remain above the 6% level that marked the peak of previous industry profit cycles. If the model is borne out, 2020 will be the sixth successive year of operating margins above this threshold.

If current forecasts for greater oil price stability come to fruition, global economic growth is set to resume its role as the key driver of the airline profit cycle.