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IATA cautions on growth
December 1st 2015
A year of relative calm? Yes. A year of improved profitability for most Asia-Pacific airlines? Certainly. But that is not the whole story. Read More » Yields are down. Full service carriers are dealing daily with fierce competition from budget carriers. Airlines have not benefitted equally from lower fuel prices.
In our region, several airlines are being punished by declines in their local currencies, a serious issue for their balance sheets when most of their equipment and services are paid in U.S. dollars.
In November, the International Air Transport Association (IATA) released an updated global airline passenger forecast. The association’s economists downgraded passenger growth for the next two decades from 4.1% a year to 3.8% annually.
By 2034, seven billion people a year are expected to take to the skies, double the 3.3 billion who flew with the world’s airlines in 2014. Before the revised forecast, 7.4 billion passengers were predicted to take airline journeys in 2034.
IATA said the new figures reflected negative developments in the global economy that will dampen demand for air transport, especially in the world’s number one future domestic market – China – where annual GDP more than halved, to 6.9%, in the last two years.
But despite the downgraded forecast, China remains the fastest growing market for airline passengers in the world, IATA said.
The top five countries for airlines in the next two decades will be China (758 million new passengers for a total of 1.196 billion); the U.S. (523 million new passengers for a total of 1.156 billion); India (275 million new passengers for a total of 378 million); Indonesia (132 million new passengers for a total of 219 million) and Brazil (104 million new passengers for a total of 202 million).
They are still huge numbers, but the IATA revision is a warning.
To make money, airlines have to halt yield declines and improve on the tiny margins of an industry so vital to the global economy. It is hard enough to achieve these goals in a benign operating environment let alone one layered with the complexity of a 21st century airline.
Other challenges to profits include the costs of countering terrorist and cyber security attacks and multi-billion dollar investments in fuel efficient aircraft that will fly further more cheaply.
Lastly, in an era where social media is remaking the way individuals live their lives, airlines must build relationships with future generations of passengers who will only communicate digitally.
Last year, the chief executive of Cathay Pacific Airways, Ivan Chu, told Orient Aviation his airline was about to invest US$130 million in social media. That’s a big chunk of anyone’s expenditure. His competitors must be doing the same.
So, as in years past, running an airline in 2016 will not be for the faint hearted.
