Issue 32 now available!

Global Aviation Outlook 2016

  • Disruption - perhaps not yet but coming soon...
  • If there is one thing that the upheavals in areas of the sharing economy have shown, it is that artificial market access controls are prime targets for disruption.

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In this issue

Main Feature

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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Feature

Trends and outlook for airports: Continued change in business models in 2016

As the year turns, the outlook continues bright for airlines as they prosper from a continuing stagnation in oil prices on the cost side and rapidly building demand in most of the world’s regions, with only the cargo segment disappointing. As margins touch 6% they are at the top end of a cycle the likes of which has not been seen for four decades. While this is bound to bring benefits for airports, for the first time airport infrastructure is actually looking to be less of a gambling certainty than are the airlines.

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Opinion

Emerging airline distribution strategies

The airline marketplace relating to distribution has been changing rapidly in the past five years due primarily to the following reasons.
By Nawal Taneja

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Regions

The 2016 regional outlook at a glance

General outlook and analysis for each regions, plus an outlook for global airports in 2016.

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Regions

South Asia: Traffic up, losses down, but fundamental reforms remain incomplete

The last few years have been without doubt some of the most challenging in India’s aviation history. Over-capacity, high input costs, intense competition and a negative policy and regulatory environment conspired to threaten the viability of virtually the entire aviation value chain.
India’s airlines alone have lost more than USD10 billion combined since FY2009. Airline debt stands at around USD11.9 billion, rising to close to USD14 billion if liabilities to vendors are included. At an industry level airline debt is now equivalent to 120% of airline revenue, and in the case of some carriers such as Air India, it is more than twice revenue.

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Regions

Northeast Asia Outlook: China begins to show its scale as its airlines go international

A decade ago, Northeast Asia was defined by a handful of flag carriers: Japan Airlines, Korean Air, Cathay Pacific and China Airlines. These giants had ruled for decades but in a relatively short period of time they are either no longer giants, or are doubling down on growth to ward off unwelcome advancements.

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Regions

Southeast Asia Outlook: Lower growth and improved profitability for the second consecutive year

Southeast Asia passenger growth will accelerate over the next several years, fuelled by a growing middle class and gigantic order book. But 2016 will experience lower growth rates for the third consecutive year as the region’s airlines continue to make adjustments following a period of overzealous – often “strategic” – expansion. While profitability improved in 2015 a majority of airlines in the region remain unprofitable and could struggle to turn the corner in 2016 due to intense competition and lingering overcapacity in some markets.

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Regions

Africa Outlook: Profitability and growth remain bleak until internal protectionism is removed

Africa’s airline sector has continued to struggle and lag other regions.  Another year of slow growth and unprofitability is expected in 2016. The region still has huge potential but this can only be untapped through structural changes and liberalisation. Government “meddling” is also an endemic constraint.

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Regions

Middle East Outlook: Gulf-led expansion continues, despite the oil price slump

Aviation in the Middle East is set for another year of healthy growth in 2016. The region’s largest airlines will continue to dominate growth and profits, as well as the strategic landscape, but fortunes for the region’s smaller carriers are brightening. The main macro factors shaping the regional outlook are continued low oil prices – a boon to airlines, but a concern for some economies - the evolution of the regional security/political situation and the lifting of sanctions on Iran. Slowing growth in major export partners could also weigh on the outlook. 

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Regions

Latin America Outlook: Mexico the only bright spot in a sombre outlook

Economic pressures that emerged in Latin America during 2014 intensified during 2015, driven by the dire situation in Brazil, which is now moving from recession to depression. Once a powerhouse of the region, Brazil’s economy contracted sharply in 2015. Additionally, the country’s inflation soared and its currency has plummeted. Brazil’s weakness has created ripple effects throughout South America, affecting all the large airline groups operating in the region.

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Regions

North America Outlook: Smaller airlines grow capacity and competition with ULCCs grows

Significantly lower fuel costs created interesting dynamics for North American airlines during 2015. For most, the sharp drop in their largest cost input helped lift profitability to record levels. But pockets of weakness emerged in the US and Canadian domestic markets that helped to drag down passenger unit revenues of nearly every North American airline.

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Regions

Eastern Europe Outlook: Faster growth, but only the toughest survive

As in previous years, Eastern Europe’s aviation markets should continue to outgrow their more mature Western European counterparts in 2016. Growth in air travel in Eastern Europe starts with higher GDP growth (the IMF forecasts a 3.0% increase in emerging Europe’s economy in 2016, compared with 1.6% for the Eurozone countries) and receives an additional boost from the fact that it has a lower penetration of air travel and so is playing a game of catch up.

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Regions

South Pacific Outlook: A now-profitable Qantas refocuses, with New Zealand also in its sights

2015 was witness to a remarkable turnaround by Qantas, which ended the calendar year heading for an AUD2 billion (USD1.4 billion) profit for FY2016. Domestic and international competitive problems have been put behind it. This is not such good news for Air New Zealand however, which faces reinvigorated competition on all fronts as Jetstar advances in its domestic market and American Airlines arrives from across the Pacific.

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Regions

Western Europe Outlook: LCCs expand, along with full service airline labour challenges

Europe’s economy, particularly that of the Eurozone, has yet to find a comfortable cruising speed seven years after the global financial crisis. Nevertheless, air travel has continued to grow at historically healthy rates. For 2015, RPK growth for airlines based in Europe looks set to be somewhere approaching 6% for the year, similar to 2014, but a little less than the global average for 2015.

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