Strong customer demand and positive traffic trends in the face of current global trade tensions as well as decreasing fuel costs should enable US airlines overall to maintain profitability if a recession should strike in 2020, JP Morgan analyst Jamie Baker writes in a 19 November research summary of the global airline industry.

2019 marks the first in four consecutive years that operating and pretax margins have expanded for most of the major US airlines Baker covers. He credits the expansions to capacity growth discipline at the beginning of 2019 and a further tightening of capacity after the grounding of Boeing’s 737 Max, leading to increased pricing power for US airlines, particularly those with fewer Max aircraft in their fleets.

While the potential return to service of the Max in early 2020 would increase capacity, Baker says that “the market may look beyond the optics of annual revenue-per-available-seat-mile declines if underlying demand remains supportive of expanding margins and earnings”.

Baker is not modeling his forecasts for a recession in 2020, but he still stress-tests his models, which lead him to believe that the US airline industry would recover quickly in a recession and remain profitable, provided fuel prices remain at current levels.

He continues to view Delta as the US airline industry benchmark, saying it generates “the highest margins of its legacy peers as a result of structural benefits that will be difficult for others to re-create”.


Looking at JP Morgan analyst notes about other global regions, analyst Fernando Abdalla says of the Latin American region that “after several years of challenging demand environment and great focus on growth, airlines have been adopting a more rational strategy towards capacity management and pricing”.

In Europe, third-quarter yields have outperformed “low expectations helped by reduced capacity growth, bankruptcies (e.g. Thomas Cook) and a less aggressive fare war in Germany and Austria”, analyst David Perry writes.

Japan region analyst Ryota Himeno remains cautious about the air transportation sector there because of the “recently emerging risk of a slowdown in demand”.

India has seen 20% traffic growth over the past five years. The leading domestic carrier there, IndiGo, is expected to grow available seat kilometers 20-25% year-over-year, analyst Deepika Mundra says.

Gross domestic product growth in Russia and the country’s continuing development of its airport infrastructure offer “structural growth opportunities” for the Russian air industry, analyst Elena Jouronova.

Analyst Hanzade Kilickiran foresees an “improved revenue outlook, better capacity management and a stabilized cost curve” in 2020 for Turkish Airlines, which had to contend this year with costs associated with the transfer of operations to the new Istanbul airport and the grounding of its 12 737 Max aircraft.