Trade war threatens recovery of travel sector 

After the coronavirus crisis, a new blow to the global aviation and tourism sector is looming on the horizon. The trade war is driving up costs in the airline industry and dampening demand for travel (particularly to the USA). We foresee a bleak outlook for transatlantic aviation.

Johan Geeroms, our Director of Risk Underwriting, comments: "Customs duties do not affect airline tickets, hotel stays or tour packages. Nevertheless, the effects on the travel sector are considerable, including in Belgium and Luxembourg. Firstly, economic uncertainty is undermining the desire to travel. Secondly, the trade war is driving up costs for airlines, which will be reflected in ticket prices. Travelers are turning their backs on America. That means fewer tourists, fewer tickets, fewer overnight stays, fewer day trips."

Tourist flows from Germany and Spain to the United States fell by 28% and 25% respectively in March. Johan Geeroms continues: "The same trend applies to Belgian travellers. Travel agencies are reporting a significant drop in bookings for the USA this year. I expect airlines to use the capacity freed up for other long-haul routes, notably to Asia and Africa. Travel in this direction is already on the increase. This also creates new opportunities for the travel industry. By targeting other markets and collaborating with non-American partners."

Although some demand is declining, European airlines are holding up well. The European aviation industry is forecasting average revenue growth of 10% by 2025. Thanks in particular to the substantial drop in kerosene prices (22% less than last year), profit margins are improving. Johan Geeroms: "Not all European airlines fly to America, like Lufthansa, British Airways and Air France KLM. For low-cost airlines like Ryanair and Easy Jet, the direct impact on ticket sales is limited. But they also face major challenges in terms of aircraft deliveries and cost management." 

The price war is hitting aircraft manufacturers hard. Aircraft prices are set to rise sharply in the years ahead. Johan Geeroms: "Even before the trade war, Boeing and Airbus were facing delivery problems. Last year, they only reached 90% of capacity before the coronavirus crisis. With the trade war, supply chain problems are only getting worse this year." Johan Geeroms refers to Christa Sys, Professor of Transportation at the University of Antwerp, who aptly explains how tariff escalation is seizing up the complex workings of today's product supply chains. "She believes that we will experience delays similar to those experienced during the coronavirus crisis.

The waiting time for aircraft orders is already long, and will only get longer. "According to our research department, the global order book stands at 17,000 aircraft. Over the past five years, the average price of aircraft has already risen by 16%. We expect a further 20% to be added over the next five years." For European airlines such as Air France-KLM, which are partly dependent on Airbus (and to a lesser extent Boeing), this means higher investment costs and delays in fleet renewal. Boeing is also very vulnerable since countries like China have put their orders on hold. "The market is shifting towards Airbus, which only increases the pressure on the company."