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Will Trump's Trade Tariffs Affect Air Travel?

March 03, 2018
3 min read
Will Trump's Trade Tariffs Affect Air Travel?
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The price of a ticket on your favorite airline could be going up as a result of President Trump’s announced plan to impose tariffs on steel and aluminum — metals that play a huge part in airplane manufacturing.

But probably not.

"I don’t see the traveler seeing any impact whatsoever," said aviation analyst Scott Hamilton of Leeham Group in Seattle. "You’re still going to have fare wars," Hamilton said in a phone interview. Wall Street analysts seem to agree.

"The impact should be small," wrote analyst Seth Seifman at JP Morgan Chase, as he assessed the probable impact of the tariffs, which so far have only been announced, on Boeing’s profitability.

In theory, it should be a big deal: 70 percent of Boeing’s workhorse 737 is made from aluminum. Airbus’ similarly-sized A320 is roughly the same. But even so, a 10 percent increase in aluminum prices would work out to less than a 2 percent increase in the price of an aircraft, Seifman wrote. And a less-than-2-percent increase would be barely noticeable to travelers, Hamilton said.

But even that wouldn’t be felt right away, given the long lead times in the industry. Boeing and Airbus sold a whopping 1,799 planes between them in 2017, but those planes won’t be delivered until well into the 2020s, Hamilton noted. "You're selling airplanes today for delivery seven years from now," he said. So, if the price increase affects fares, "by the time it gets down to the traveler, nobody’s going to notice," he said.

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So while a slight increase in metal prices now could affect airfares in 2025, it’s more likely that other real-time factors — fuel costs, labor costs, competition on individual routes — will play a bigger role in determining pricing at that point.

Hamilton noted that Boeing itself raised baseline prices for its planes by 4 percent for 2018, which is more than the increase resulting from the tariffs projected by Seifman.

And all this is assuming that President Trump sticks to his tariffs announcement. The New York Times reported Friday that some leaders within the administration and Congress are urging the President to walk back the plan, and sources told the paper that so far, there isn’t a written proposal in place to carry them out.

But assuming the tariffs are implemented, the cost to Boeing is likely to be small, Seifman wrote. "Lots of cost variables move around all the time, and so a low-single-digit change does not seem like a showstopper," he wrote.

Boeing itself may face a financial risk in this, if China decides to retaliate massively against the tariffs, for example by going beyond the imposition of similar tariffs on US aluminum and steel. Chinese airlines have outstanding orders for 304 Boeing planes — what if they got canceled in retaliation? But even if the Chinese government canceled every outstanding order, Boeing would still have roughly 5,500 orders on its books — nearly eight years' worth of jets at current production rates.

Featured image by Getty Images