Has the industry reached its tipping point?

The year started optimistically with record low fuel prices and strong consumer demand, however a number of terrorist attacks, the UK Brexit referendum shock, an impending Chinese economy slowdown and the US election marathon, all appear to be taking their toll on the global aviation market.

The year started optimistically with record low fuel prices and strong consumer demand, however a number of terrorist attacks, the UK Brexit referendum shock, an impending Chinese economy slowdown and the US election marathon, all appear to be taking their toll on the global aviation market.

According to International Air Transport Association (IATA) global passenger traffic data for June demonstrated that demand (measured in RPKs) rose by 5.2% compared to the same period a year-ago. This was up slightly from the 4.8% increase recorded in May. However, the upward trend in seasonally-adjusted traffic has moderated since January. June capacity (ASKs) increased by 5.6%, and load factor slipped 0.3 percentage points to 80.7%.

“The demand for travel continues to increase, but at a slower pace. The fragile and uncertain economic backdrop, political shocks and a wave of terrorist attacks are all contributing to a softer demand environment,” said Tony Tyler, director general and chief executive officer, IATA.

In January, crude oil was $36 per barrel dropping to a record low of $26 per barrel, before hitting $48 per barrel at the end of August. Combined with improved consumer confidence and the benefits of consolidation starting to materialise, many carriers were posting strong financial figures for the first quarter of 2016.

“However, as the year is progressing, to reiterate IATA, the outlook isn’t so positive,” warns Nigel Mayes, senior vice president consulting & product development at air service development consultants, ASM. “These uncertain times precipitate repercussions across the industry. The European full-service carriers are feeling the financial pressure and continue to deal with their structural issues, in particular Lufthansa, Air France-KLM and airberlin.”

Some markets have faced tougher market conditions than others, notes Mayes - it’s been a year to forget for Russia, Brazil (Olympics aside), Tunisia and Turkey, with the collapse in confidence in the Russian market, political instability in Brazil, and the impact of terrorism affecting North Africa.

But on a more positive note, he says there are more Chinese carriers growing internationally, with the Ruili Airlines Boeing 787 order this year making the number of carriers with wide-bodies in their fleet, or on order, up to 12. Moreover, there have been a number of new long haul services launched by carriers outside of the big three Chinese carriers, such as Xiamen Airlines, Tianjin Airlines, Hainan Airlines, Sichuan Airlines and Beijing Capital.

The final piece of good news from the Asia market in 2016 has been the news on the possible return of AirAsia X to Europe and Scoot following with the announcement to serve Athens. “Does this pave the way for more low cost carriers to look to connect Europe to Asia?” questions Mayes. “Don’t forget on a smaller scale, we have the Iranian and Cuban economies emerging, including their aviation markets,” he adds.

So with some positives from around the world, it will now be interesting to see if global passenger traffic can stabilise in 2017 and whether an air of optimism returns to the industry.


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