Trade war impacting global aviation

There is mounting evidence of a downturn in air travel and tourism across some key markets, while air freight volumes are also seeing a slowdown in some areas. Part of this will be due to base effects following the remarkable recovery in the aviation sector over the past several years post the Covid-19 shutdown: many airports and routes have seen passenger records broken, while strong demand for airfreighted consumer goods was bolstered by disruptions to global shipping. As such, with a higher nominal base, maintaining the same levels of growth will be more difficult. However, the slowdown is likely also being driven by the more uncertain outlook for the global economy in 2025, and the impact the tariffs being imposed by the US government on trading partners around the world will have on both businesses and consumers. With uncertainty likely to remain prevalent through the rest of the year and the risk of a global economic downturn rising, the aviation sector is set to come under pressure in 2025.

While the effect of the US tariffs and the heightened uncertainty around the future pathway of the levies haven’t yet fed through into hard data, it is very apparent that they have already had a material impact on consumer and business confidence. The Global Consumer Confidence Index from Ipsos fell to 47.7 in April, down from 48.2 the previous month and 48.9 a year earlier, taking it deeper into negative territory. With tourism and leisure travel a perfect example of a discretionary spend, a protracted slump in confidence will likely see holidaymakers increasingly think twice about flying for their holiday this year.

IATA global air travel data for March held up relatively well, with y/y global growth in revenue passenger km (RPK) up 3.3% y/y, up from 2.7% in February. International demand remained robust as it expanded by 4.9%, although this was down from 5.6% in February. Global domestic demand was up 0.9% compared with a 1.9% fall in February. Most regions saw an expansion on the March 2024 performance save the Middle East and North America, which shrank by 0.7% and 1.1% respectively. Given the deteriorating outlook for the year ahead (the IMF was only the latest international body to revise down its 2025 forecasts when it published its quarterly World Economic Outlook last week), we expect that the growth in global air travel will slow through the coming months.

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