Articles in ‘Main Feature’

Uncertainty, unpredictability – and unprofitability? – in 2017

Uncertainty usually spells bad news for economic growth, for business and discretionary spending and, in turn for airlines. There is plenty of uncertainty in the air as 2017 gets under way. 

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Disruption in the airline industry: Part 1

There are two essential elements to the airline industry: flying aeroplanes and selling (and buying) seats. More technically this can be described as (1) operational; and (2) marketing and sales. There are other important activities, such as lobbying government to limit competition, and exploiting frequent flyer programmes, but those two are the core activities now facing disruption.

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Disruption in the airline industry: Part 2

It is notable that airline liberalisation has scarcely been driven by overt consumer pressure. Instead it has been a handful of influential and enlightened governments who, recognising the flow-on economic benefits, have promoted aviation liberalisation in the wider national (and global) interest. In fact, with some exceptions, airline consumers have in general received a good deal over the past 40 years, in terms of low fares and good product, a result of the combination of regulatory change and of airlines prepared to exploit it effectively. LCCs and the Gulf airlines have played a major part in that.

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Global airline financial outlook

Operating margin to reach new high in 2016, but this may signal a subsequent downturn

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Demand is the issue for 2016

For 2015, the pivot was cost, as fuel prices astonishingly slumped by some 50%. In those circumstances a lot of inefficiency could be disguised, allowing widespread profitability. Prices have remained low, still defying anyone to predict where they will go in 2016. No-one predicted the slump, so everyone may equally be overlooking the signs that predict a surge.

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Airlines rush to manage their debt while the going is good

When it comes to debt reduction, the airline industry is currently following the old adage: make hay while the sun shines. Airlines are enjoying a cyclical earnings upswing, but have mostly avoided the historic temptation to throw the resulting improved cash flow at higher capital investment. Instead, they are paying down debt and reducing their financial gearing.

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Russia’s bear market

Russia, once a fast-growing engine of world economic growth enjoying robust growth in airline passenger numbers, has been hit hard by the effect of sanctions and reduced demand for international air travel to/from the country. Investors now are looking nervously at the prospects of what was until recently one of the phenomenal-growth BRICs.

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Who has the right model for European aviation? Pan-European airlines lead, but models vary

There has never really been a consensus on the question of what defines success in the airline industry. However, that now seems to be changing and opinion is coalescing around the idea that financial performance is the best demonstration of success. Chapter 11 bankruptcy, followed by consolidation has helped profitability in North America, but this process has slowed to a trickle in Europe’s more fragmented airline sector, forcing each European airline to devise its own formula.

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Asian airports respond to the needs of LCCs

In Southeast Asia nearly 60% of all airline seats today are on LCCs. The different - and changing - needs of the low cost model have forced airports to re-evaluate how they service the new mix. A mere 15 years ago, scarcely even a minor investment cycle for airports, there were no LCCs.

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Long-haul low-cost – Yes it does work, but there’s no template for success

Over the past decade, more than half of the world’s new entrant long-haul airlines have been low cost. This is a radical break from the full service norm and a quick sprouting of low-cost, long-haul.

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