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As the bond rate inversion curve appeared on 14-Aug-2019 in the US and the UK, Wall Street headed rapidly south. A number of other countries have already this experienced inversion for a while. And in Germany, the world’s fourth largest economy, GDP growth rate went into reverse in 2Q2019. Does this mean recession is coming, or even imminent? Air freight numbers have been steadily falling for nearly a year. They used to be good forward indicators of where the world economy is headed, but not so much in recent years. Passenger traffic growth too has slowed markedly in the past year. Global trade conflict is creating uncertainty and aviation is inevitably caught up in that. So are we heading for trouble, and if so, when? Air Freight is not only an economic indicator, but a large revenue earner Especially for airlines in Asia Pacific, freight contributes considerably to overall revenues. And, since late-2018, the freight downturn has hit almost all regions, as this IATA chart shows. Freight tonne kilometres (FTKs) fell nearly 5% y-o-y in Jun-2019, the eighth consecutive month for negative annual growth. FTK growth by region, Jan-2016 to Jun2019 Source: IATA Economics The aggregated figure shows this emerging trend clearly, as the seasonally adjusted line tracked down since late 2018. Freight Tonne Kilometre growth 2014-2019 Source: IATA Economics Uncertainty is the killer ingredient for trade and investment There are conceivably two factors involved in this air freight trend: a broad slowing in many economies, cooling imports and exports, and the flow on impact of the accelerating trade dispute. In this mix, uncertainty is the common and increasingly dominant feature. Uncertainty leads to reluctance to invest and that, simply and predictably, flows down the line. President Trump’s recent threat to impose higher duties on a range of Chinese exports can be imagined as having a similar effect to that in a three mile long freight train, when the driver slams on the breaks. All down the train there is a thud-thud-thud as each truck hits the one in front of it, each creating disruption. Then, when the driver suddenly pushes the train back into fast forward, the process is repeated in reverse, thud-thud-thud, with each impact creating repercussions for every part of the supply chain. Those repercussions translate to bankruptcy for some in the supply chain, as payments and commitments become more unpredictable. Strong passenger growth of recent years is slowing fast Passenger number growth has slowed in most markets, notably Europe; 5.4% is still healthy growth but it is trending downwards. Only Latin America, Africa and Asia Pacific were up, month over month. International passenger traffic growth, year to May-2019, by region* *by airline region of registration Source: IATA Economics World markets have been skittish for some time Most of the world’s stock markets take their lead from Wall Street, which in turn is a fair reflection of the world’s most powerful economy. And, fuelled by tax reductions and low interest rates, that economy has been growing strongly for over a year. More recently, as the trade war has escalated, direct and collateral damage has spread through the world economy. The 14-Aug-2019 800-point fall in the Dow was the worst single day drop of the year, although the second worst fall, of 768 points had occurred the previous week. Recent behaviour has been for a quick recovery on the following day. And the index is still well above where it started the year and happily in front of the mini-slump in Jun-2019. The Dow Jones Index performance 1-Jan-2019 to 14-Aug- 2019 Source: google But some US airline stocks have had a less positive year Despite a solid profit performance in recent years, and professed expectations that high profitability would continue indefinitely, investors have been less kind to the US majors. American notably has borne the brunt of negative sentiment. American Airlines Group share price performance 1-Jan-2019 to 14-Aug- 2019 United Airlines share price performance 1-Jan-2019 to 14-Aug- 2019 Delta has been a standout, and even when the overall market came down 3%, managed to sustain a slightly smaller fall. Delta Air Lines share price performance 1-Jan-2019 to 14-Aug- 2019 And JetBlue too has been a strong performer, caught in the day's downdraft. JetBlue share price performance 1-Jan-2019 to 14-Aug- 2019 Globally, the airline share price picture is somewhat gloomier When viewed against generally strong overall share markets, the airline sector has clearly come off its highs of 2017 and 2018, when oil prices were low and traffic was stimulated by lower fares. Lufthansa has disappointed, down over 25% since Jan-2019. Meanwhile, by contrast, the DAX Index is up nearly 10% over 2019. Lufthansa share price performance 1-Jan-2019 to 14-Aug- 2019 Battered by Brexit, the International Airlines Group share price is down by one third for the year. There may be more to come, as B-Day looms. IAG share price performance 1-Jan-2019 to 14-Aug- 2019 Oddly enough, despite its weak marketplace performance, Air France-KLM's stock has performed relatively well, compared with its European airline neighbours. Air France-KLM share price performance 1-Jan-2019 to 14-Aug- 2019 In Asia, steep competition and recent trade insecurity have taken their toll on airline share prices Although performing sluggishly in 2019, Singapore Airlines has been relatively unaffected by the US uncertainty of the night before. Singapore Airlines share price performance 1-Jan-2019 to 15-Aug- 2019 Cathay however has other problems in the short term, as well as being a victim of the freight downturn, a significant earner for the airline. Its share price is down nearly 6% on the day following the Dow’s 3% fall. Cathay Pacific share price performance 1-Jan-2019 to 15-Aug- 2019 Asia’s largest international airline by passenger numbers is being affected by stern competition in the marketplace. AirAsia share price performance 1-Jan-2019 to 15-Aug- 2019 Meanwhile, China’s major airlines are being impacted by slowing overall economic growth in the country. They have however not been greatly affected by the overnight falls on Wall St. Air China share price performance 1-Jan-2019 to 15-Aug- 2019 China Eastern share price performance 1-Jan-2019 to 15-Aug- 2019 The major airline in the South Pacific, Qantas, dominates its domestic market and until now economic conditions have held up well. But here again, investor fragility in the face of growing uncertainty is evident with its post-Wall Street performance, on 15-Aug-2019. Qantas share price performance 1-Jan-2019 to 15-Aug- 2019 LATAM is spread across several Latin American countries and tends to reflect not only the growing level of competition, but also the strength of the region’s economy. Argentina’s rapid slump manages to pollute some of its neighbours too, notably Brazil, its largest trading partner. The size of the airline’s share price fall on 14-Aug-2019, more than twice the Dow’s drop, illustrates the sensitivity of investors towards the region’s airline market. LATAM share price performance 1-Jan-2019 to 14-Aug-2019 Preparing for stormy weather It may be that the markets will rebound quickly. Recent performance would suggest something of a rebound on Wall Street. But the volatility of the share market and a growing degree of pessimism, especially outside the US, means that any prudent airline will be looking to create a buffer in the event of a slowing in demand. https://centreforaviation.com/analysis/reports/whats-going-on-in-the-world-economy-and-where-is-aviation-heading-488084

https://blueswandaily.com/capa-it-remains-to-be-seen-how-yields-are-faring-in-chile-with-the-lccs-market-stimulation/ May 7, 2019 CAPA – Centre for Aviation, in a report entitled: ‘Chile‘s LCCs JetSMART, Sky, spread across Latin America‘, stated (07-May-2019) that a quick snapshot of Chile’s domestic aviation market data shows that JetSMART’s thesis of passenger stimulation could be occurring in Chile. SKY Airline‘s domestic passenger levels grew 10.5% year-on-year in 2018 and LATAM Airlines Group‘s total passenger growth in Chile was 10.6%. Chile’s domestic passenger levels have expanded and even as LATAM‘s passenger share has decreased, its dominance remains intact. But it remains to be seen how yields are faring at Chile’s three largest airlines.

Aviation is ‘trapped in a web of protectionism’, is ‘not punching above its weight’ and ‘represents 35%-40% of global trade by value’ – more insights from the CAPA Qatar Aviation Aeropolitical and Regulatory Summit February 8, 2019 It is now 75 years since the aviation regulatory framework was established, and with the evolution of the industry many believe it is time for a serious global review of its relevance today. The “business of freedom” underpins 10% of global GDP and it is too important to be constrained by economic regulation that was designed to meet entirely different conditions. What trends and opportunities await our industry? What strategic challenges and risks are we set to face in the year ahead? Discussions will cover Europe’s aviation relations with the world, a post Brexit world and its repercussions, North America’s approach to open skies, how open skies have helped Asia’s emerging markets, Africa and SAATM, airport privatisation and infrastructure, air cargo and industry sustainability. CAPA – Centre for Aviation attempted to address those questions with its Qatar Aviation Aeropolitical and Regulatory Summit, which had more than ten hours of agenda content designed to address the latest development in aviation regulation both within the Gulf Cooperation Council countries and globally. Here’s some more insights and observations from delegates during the event at the Sheraton Grand Doha Resort and Convention Hotel in Qatar. National University of Singapore professor: ‘aviation remains trapped in a web of protectionism’ National University of Singapore professor of aviation law Alan Tan stated “aviation remains trapped in a web of protectionism”, noting “most states are enamoured by the outdated, archaic idea that flagship carriers are spreading the brand of the nation”. AFRAA secretary general calls for establishment of SAATM ‘executive agency’ African Airlines Association secretary general Abderahmane Berthe stated Africa needs to prepare its airlines for “huge growth.” Mr Berthe called for the establishment of an “executive agency” on the Single African Air Transport Market (SAATM) to “enforce mechanisms” and maintain the level of aviation safety in Africa. European Commission DG mobility & transport: ‘Aviation is not punching above its weight’ European Commission director general mobility and transport Henrik Hololei stated “aviation is not punching above its weight when it comes to government importance. It is not necessarily seen on a political agenda to the level its statistics suggest”. RwandAir CEO: ‘We need to get the idea that protectionism will not work’ RwandAir CEO Yvonne Manzi Makolo stated “with 13 land locked countries, we need to get the idea that protectionism will not work – we need to open our skies, reduce taxes and allow for free movement of goods and services”. MAVCOM director: 25% of traffic rights allocated are ‘not utilised’ Malaysian Aviation Commission (MAVCOM) director aviation development Germal Singh Khera stated “the representation of traffic rights that have been granted to Malaysian carriers that operate both domestic and international amount 97%”. Mr Khera added, “out of this 97% allocated… about 25% are not utilised”. TIACA secretary general: ‘aviation represents 35%-40% of global trade by value’ The International Air Cargo Association (TIACA) secretary general Vladimir Zubkov stated “aviation represents 35%-40% of global trade by value”. RwandAir CEO: SAATM is a ‘flagship agreement’ RwandAir CEO Yvonne Manzi Makolo, commented on the Single African Air Transport Market (SAATM) as a “flagship agreement”, noting “we are seeing a change in mindset”. Ms Makolo stated “there is a level of optimism”, however SAATM will only succeed through liberalisation. Ms Makolo added, “there is a ‘not in my backyard mentality’ but they will see the benefits eventually”. Cambodia SSCA: Dependence on ASEAN ‘alone might take some time’ Cambodia State Secretariat of Civil Aviation director of air transport Chanty Vann stated the Cambodian government formulated it’s own policy framework to prioritise the growth of aviation in Cambodia. Mr Vann stated: “To depend on ASEAN alone might take some time…” the formulation of a “special policy” by the government is in order to enhance aviation industry in Cambodia. UFTAA president calls for collaboration between travel agencies and airlines United Federation of Travel Agents Associations (UFTAA) president Sunil Kumar stated “we can add value to content and offer more services” through collaboration between travel agencies and airlines. https://blueswandaily.com/aviation-is-trapped-in-a-web-of-protectionism-is-not-punching-above-its-weight-and-represents-35-40-of-global-trade-by-value-more-insights-from-the-ca/