Last week, the team of economists at Allianz Research, the research division of Allianz Trade, published the report The cost of a weaker dollar, tariff turbulence ahead for the travel industry and chip war reloaded, which analyzed the impact of the tariffs applied by US President Donald Trump on the economy and also on the airline sector.
According to the authors, the industry is facing a turbulent period, caused by the tariffs imposed by the new US istration, which could inflate aircraft costs (exacerbating existing production challenges) and potentially weaken inbound tourism in the US. The current trade war has interrupted the financial recovery that airlines enjoyed in 2023 and 2024 (when revenues jumped +23% and +7% annually, respectively, and profits returned to positive). Of all the current headwinds, the most worrying is limited capacity. The study points out that, although industry capacity grew by around +21% annually in 2022 and 2023, in 2024 global ATK¹ increased by only +8% and is expected to remain limited to around +5% this year.
¹ATK, or available tonne-kilometres, is a capacity measure that combines both enger and freight capacity. It is calculated by multiplying the enger and freight carrying capacity (converted to tonnes) by the distance travelled.
Production levels and supply chain disruptions
Another factor analyzed in the report is the difficulty for aircraft and key component manufacturers to return to pre-pandemic production levels, hampering deliveries. The authors believe that the ongoing trade war is likely to exacerbate disruptions to global supply chains, as well as specific issues at manufacturers, making aircraft more expensive. Aircraft have become +16% more expensive over the past five years and prices are expected to continue rising by around +20% through 2030, they predict.
The US tourism landscape is also changing and is likely to weigh on airlines most exposed to this market. The US ranks third in global international tourism, behind and Spain. Last year, the country welcomed more than 72 million international visitors (+9% year-on-year). This increase contributed to a record USD 215 billion (+14% year-on-year) in tourism revenues, making this sector (and all leisure-related sub-segments) important to the US economy. Therefore, economists estimate that inflationary fears and uncertainties related to the deterioration of diplomatic relations with neighboring countries could hurt tourism. Canada and Mexico for 52% (37 million) of tourists visiting the US annually, and according to US Customs and Border Protection, the number of visitors crossing the northern and southern borders has already fallen by -6% in February and -8% in March (year-on-year).
Via Allianz Research
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