Operating margin to reach new high in 2016, but this may signal a subsequent downturn
South Asia: The good news is losses have declined significantly and three Indian LCCs ended the year
India’s airlines have seen a significant improvement in their financial performance over the last year, and the positive momentum is expected to continue. Air India’s losses are estimated to have declined to USD500-600 million. In other markets in South Asia, where state owned carriers dominate, the outlook is not as encouraging.
Southeast Asian airlines experienced a significant improvement in profitability in 2015 as fuel prices dropped and market conditions became more favourable after a dismal 2014. However, Southeast Asia’s airline sector continues to underperform compared to other regions in Asia Pacific and particularly to Europe and North America.
A continued reprieve from higher fuel costs should again yield healthy profits for North American airlines during 2016.
A few years ago amidst the economic downturn it was Northeast Asia – with its main Chinese market – that was a strategic bright spot for aviation.
Despite being a relatively compact geographic area, the Middle East is aviation’s most diverse market. The region is home to three airlines – Emirates, Qatar and Etihad – that link traffic from all parts of the world but also makes them disruptors and opposed by many competitors.
Many airlines in Latin America are suffering from the effects of a recession in the largest market, Brazil, that is driving overall economic weakness in South America - although Pacific coast markets are performing better.
As with the other regions of the world, Europe’s airlines had a good 2015. The aggregated operating profit of the 16 largest listed airline companies was one third higher than in 2015 (based on 12 groups that had already reported and analyst consensus forecasts for the remaining four). Their collective operating margin improved from 6.6% in 2014 to 9.7% in 2015.
In Australia, more rational capacity management has continued after several years of imbalance – at the start of 2016 total year on year capacity growth sat below 2% while market share changes between Qantas, Jetstar, Virgin and Tigerair did not move by more than +/- 1%.
Like the Middle East, government ownership is the default position for Africa; that it is coupled with excessive government intervention is no surprise, nor is the poor financial performance of the continent’s airlines. Few are listed, in this environment.
My column in the last issue of Airline Leader, “Accelerating Transformation, Innovation or Disruption: to create more value in the air travel space”, led to some questions from leaderships at a few airlines starting with: Does the transformation discussed in that column now need to move to the digitisation level? If yes, why and how?
As of 01-May-2016, the global fleet order backlog stands at 12,711 aircraft, 64.9% of which are narrowbodies. Measured by units, aircraft on order overall stand at 42.7% of the in-service fleet.
A plot of cost per available seat kilometre (CASK) against average trip length reconfirms a few truisms. Low cost carriers (LCCs) really do have lower unit costs, for a given average trip length, than full service carriers (FSCs).