//
you're reading...
Aeropolitics, Airline Management

Aviation consultancy IBA has questioned whether airline profitability may have peaked considering the current macroeconomic outlook. A number of airlines are today operating with negative margins and may find the times ahead particularly difficult. Costs will continue to rise and more airlines may begin to feel the squeeze later in the year.

Read my regular Articles and Posts on LinkednIN:  https://www.linkedin.com/in/tomas-chlumecky-3200a021/

 

Airline Economics Daily – July 5, 2018

 

 

Tomas’s Comment:

 

We all know the airline business is a tough business to make a living in, margins are low and many costs are not controllable and the industry is very dependent on economic growth and fuel prices for its success.

 

In the first 9 months of 2017, we had globally 79 new airlines start-up airlines (8.8 per month average) and 25 went out of business (2.8 per month average), with Europe being the most active with 29 start-ups and 14 failures.

 

Most people would be surprised to know that there were as of the end of 2017, 833 airlines of all sizes (excludes business/private operators) with 291 x regionals, 225 x mainline, 111 x LCC, 108 x cargo, 78 x leisure  20 x ACMI operating globally, with 5,000 airlines with ICAO codes? and yet only 287 are members of IATA (34.3%) and 415 operate 10 or more aircraft (from CE-206’s to A380’s).

 

Europe is going to go through consolidation, each of the 50 states cannot have its own airline without state aid keeping it afloat. It is expected that between 2018-2020 many airlines will fail, as consolidation is coming, higher fuel costs and more competition will see the marginal players bow out or forced out.

 

—————————————————————————————————————————-

IBA questions future airline profitability

 

Aviation consultancy IBA has questioned whether airline profitability may have peaked considering the current macroeconomic outlook. According to IBA, there are mixed signals at play – positive metrics including traffic growth, vibrant new markets, and a buoyant SLB market seem to indicate that strong net profitability will continue.

 

However, with the gathering clouds of creeping fuel prices, rising interest rates, wage inflation and increasingly price-sensitive passengers, a different picture begins to emerge. Mid-2018 fuel prices are $15 higher per barrel than IATA predicted, a 40% increase year on year.

 

Base airfares and yields have generally stabilized since the sustained decline seen in recent years. Stronger economic conditions, leading to higher passenger demand have been offset by increased competition thereby causing base fares to be held back. IBA suggests that airline costs are expected to rise which would result in an upward trend in yields.

 

With the use of its airline scoring system, IBA has identified a number of airlines that are operating with negative margins and may find the times ahead particularly difficult. IBA predicts that if costs continue to rise, more airlines may begin to feel the squeeze later in the year.

 

IBA’s mid-market analysis indicates that there is a gap in the market in terms of pricing range and payload, however, it is not clear if the gap is as large as some have estimated. Further analysis is required, says IBA who will continue to conduct research around the market potential for a New Midsized Aircraft (NMA).

 

IBA expects values to remain strong for new types of narrowbody aircraft as demand continues to strengthen. Rising costs will favor the fuel-efficient new generation of neo and MAX aircraft, and with deliveries of new generation narrowbodies expected to rise, an increase in retirements is also expected along with a surge in conversion demand.

 

Demand for mid-sized widebody freighter conversions is strong, particularly for the Boeing 767-300ERs, which is expected to continue to go through the P2F process in significant numbers. Adding some future competition to this market, the first A330-300 aircraft have now been converted to freighters for DHL and the first converted A330‑200 is in testing and will subsequently enter service with Egyptair.

 

The 787-8 backlog continues to dwindle despite the recent orders from American Airlines. Transactions and deliveries are down and some operators have shown a desire to leave the smaller variant behind. The A380 programme benefitted from a further order from Emirates earlier this year; some transitions are apparent but teardowns have also been announced. Elsewhere, the Boeing 787-9 and Airbus A350-900 aircraft are performing well whilst mature wide-body values and lease rates are decreasing.

 

IBA.iQ, IBA’s data platform, forecasts over 60 Airbus A330ceo lease ends each year over the next three years while A330-200 lease ends are expected to peak in 2020, potentially pushing pricing to levels attractive for P2F conversion. IBA.iQ also forecasts a peak in Boeing 777-300ER deliveries in 2019.

 

With the Farnborough Airshow fast approaching, IBA predicts that with a strengthening economic outlook – GDP and traffic growth, improving load factors, flattening of yield decline and rising oil prices, it is likely that there will be strong orders for new technology during the show.

 

Advertisements

About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 30+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (50+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems in the business for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com I write a lot of Articles and Posts on LinkedIN: https://www.linkedin.com/in/tomas-chlumecky-3200a021/

Discussion

No comments yet.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: