Structural discipline works

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

February 1st 2017

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Historically, when the global economy collapsed, airline profitability followed suit. As a result, again historically, airlines often have had to sell their product, the airline seat, at a loss. Read More »

Now, for the first time in the history of formal recorded airline statistics, has not happened. The shock of the oil spike of 2007, followed by the Global Financial Crisis of 2008, forced airlines to put in place the necessary structural reforms that rescued them from being hostages to the fortunes of global economic performance.

Since 2010 the world’s economy has not performed well but the airline industry has improved its collective numbers. In 2017 a record will be set. It will be the eighth consecutive year of aggregate profitability for the global airline industry.

While some airlines never learn from their mistakes – most commonly erroneous fleet planning and consequent price wars to fill too many seats - many do, including some many airlines in the Asia-Pacific.

International Air Transport Association (IATA) chief economist, Brian Pearce, said at a recent IATA media briefing that the structural improvements taking place in the industry and the improved financial health of airlines have not only been about low oil prices.

Last year, jet fuel prices averaged US$52.10 a barrel. IATA forecasts that will increase to $64.90 barrel in 2017. With no hedging, higher jet kero costs will add almost $25 billion to airline costs for the 12 months, yet carriers’ net profits are expected to fall by only $5 billion for the year.

Severe restructuring at many airlines, and other measures such as the densification of seats on aircraft and increasing ancillary revenue, are better placing carriers to handle the many and varied shocks that come their way at any given time.

These improvements will endure, said IATA, even if low oil prices disappear. This reassuring news, also reinforces the fact that in this new, digitally dominated world, industry restructuring is the necessary path to sustainable profits.

In 2017 and beyond, restructuring is no longer a three or five-year program. Change is now a constant in any business, not just airlines. And at airlines, those that don’t adapt to the new world probably won’t be around for much longer.