The state of the global airline industry… growth shifting toward Asia!! [1]

Traveling never ceases to amaze me. It’s addictive, it’s exploratory and I’ve found it to be the quintessential tool for self-discovery and understanding where you come from. And of course it’s a given that travel broadens the mind, as we interact with people from different cultures and learn to appreciate our similarities and NOT our differences. Mankind’s need for food & water, shelter, security, education and wellbeing is indeed universal.

But enough about that. I wanted to point out that today there would virtually no real travel industry without air travel. An article I read in The Economist (Aviation: Climbing through the clouds) provides a snapshot of just how complex and fascinating air travel is. In 2011, despite recessionary economies in much of the developed world, airlines are enjoying record profits… AND the growth and excitement IS SHIFTING to ASIA… BIG TIME!! Here’s the rest of the story.

LAST month 230 international airlines gathered in Singapore for the annual meeting of the International Air Transport Association (IATA), their trade body. The price of oil, at more than $110 a barrel, cast a pall over proceedings: a rise of $1 a barrel adds $1.6 billion to airlines’ costs, and IATA expects a barrel to cost an average of $30 more this year than last. The industry’s net profits of $18 billion in 2010, a rare good year, were forecast to plunge to $4 billion in 2011 (see chart 1). Yet only a fortnight later at the Paris Air Show airlines went on a $90 billion shopping spree, ordering 730 planes from Airbus and 142 from Boeing, enough to keep production lines humming for seven years.

Two things explain this paradox. The first is that because oil accounts for a third of operating costs, airlines are desperate for more fuel-efficient planes. Late last year Airbus brought out a re-engined version of its A320 single-aisle family, offering fuel savings of up to 15%. It has become the fastest-selling new aircraft in history. More than 1,000 have been ordered, many of them by fast-growing budget airlines. The biggest demand is in the Asia-Pacific region: India’s IndiGo and Malaysia’s AirAsia ordered 380 between them in Paris. This illustrates the second explanation, the tilt of aviation, like that of so many other industries, to the east. Profits in Asia were double those in the rest of the world last year (see chart 2) and growth rates there are stronger than in Europe and North America.

Airlines helped to bring about globalisation, but their own industry is far from globalised. Instead of globe-spanning giants, the world has 230 flag-carriers and several dozen budget airlines. Even last year the industry’s profit margins were not fat. Only those innovative low-cost carriers make decent money.

… this old model is coming under pressure: consolidation of a sort is taking place at a regional or continental level. The rapid growth of Asian traffic is one reason for this. The rise of low-cost carriers born in liberalised markets is another. And over the past decade airlines have been buffeted by one external shock after another, from the terrorist attacks of September 11th 2001 and the SARS health scare to recession in Western economies, volcanic eruptions (last year in Iceland, this year in Chile), the Japanese earthquake and tsunami, and the rise in oil prices.

Airlines took six years to recover from losses of $13 billion in the annus horribilis of 2001 and made a profit of $14.7 billion in 2007. But then the cost of a barrel of jet fuel more than doubled, to $170, just as the recession sent load factors down. Some airlines, such as Ryanair, the biggest European budget carrier, have taken to parking many of their planes in the winter rather than burning fuel in half-empty aircraft.

… Giovanni Bisignani, a former boss of Alitalia and the head of IATA from 2002 until this year, reminded colleagues in his leaving speech in Singapore that even in 2010, “the best year of the decade”, they had “a pathetic [net profit] margin of 3.2%”. For most of the past 40 years, he notes, margins were merely 0.1-0.2% on average. At the best of times airlines are fragile. Even low-cost successes such as easyJet and Ryanair make losses some of the year…

Inspiration: Aviation: Climbing through the clouds”, The Economist

About dianhasan

Brand Storyteller, Travel Writer, Speaker, Creative Writer & Thinker - avid observer of randomness in everyday life - Sustainable Business, Eco Matters, Sustainable Urban Issues, Architecture, Heritage Conservation, Innovation & Brand-Strategy, Cross-Cultural Communications, Travel, Tourism & Lifestyle.
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