Global airlines can breathe a sigh of relief as the price of jet fuel – their single biggest cost item – has climbed down, but there is no shortage of obstacles on the horizon.
“There are numerous challenges both manmade and natural but this has always been the case,”
“It makes it critical for airlines to be 100 per cent focused on efficiency and cost management. Equally there is a need to be flexible and quick to adapt capacity according to any given crisis.”
Indeed, while the aviation industry celebrates its centenary, it remains constantly under threat from new challenges. Whether its the Ebola crisis in West Africa, geopolitical flashpoints, or the sagging global economy, the sensitive aviation industry feels the ripples of virtually every major economic and political event.
A perennial challenge for an industry that has razor-sharp margins is cost. In 2013, the global aviation industry safely transported 3.3 billion passengers to 50,000 routes, but made just under $18 billion in revenues. That’s $4.13 in profit per passenger.
Despite these unimpressive returns, industry players are hardly looking to keep their fleet grounded. Indeed, they are in expansion mode with as many as 1,400 airplanes expected to have been delivered to the industry at a cost of $150 billion last year.
While the industry has done a remarkable job handling costs and volatile fuel prices, it is being weighed down by regulations and excessive security measures that are becoming a feature of air travel.
The global airline industry contributes 3.4 per cent to the world’s GDP, and generates $2.4 trillion in economic impact annually, and is a crucial network that connects the global economy.
The global airline industry is also facing intense competition, especially from low-cost carriers in the developed world.
“Low cost carriers will succeed in any market. Everywhere on the planet, the majority of consumers love low fares,” Sorensen noted. “Full service airlines will survive, and perhaps thrive, where they can erect regulatory defenses to keep low cost carriers out. Beyond that, traditional airlines seem to have a natural advantage with long haul services.”
At the other end of the airline spectrum are the full-serviced players from the Gulf region that offer a superior quality of service and are demanding greater market share from the traditional players in the developed world. Luckily for the global aviation industry, the pie is getting bigger. Rising incomes, growing populations and more economic growth in less-developed markets is fueling growth.
Indeed, eight of the 10 fastest growing air travel markets in the world are expected to be in Africa. Meanwhile, the densely populated markets of China, the US, India, Indonesia and Brazil will emerge as the five fastest growing markets in terms of additional passengers per year, IATA forecasts show.