The global airline and air transport industry met this week in Doha, Qatar, as part of the 70th annual International Air Transport Association (IATA) AGM. Whilst being primarily focused on the issues affecting the global airline industry, many of the discussions and outcomes of the AGM were of significant interest to manufacturers.
Airline profits set to rise in 2014, but concerns remain on margins
IATA stated at the AGM that in 2014 it expected airlines to make an $18bn (£10.7bn) profit – a significant rise on 2013 calculations. However, this value was down on its original estimates in March, and for an industry which is expected to achieve revenues of $746bn in this year, this represents a profit margin of only 2% (less than $6 per passenger).
IATA’s reduction on initial estimates reflected industry concerns over rising infrastructure costs, air traffic management integration and various tax and regulatory issues. Whilst airlines utilise a number of private finance initiatives to purchase new aircraft and retrofit its fleets, rising concerns on overall profits mean that manufacturers may have to offer greater flexibility on its products and operating costs – which could cause a greater squeeze on supply chain costs.
High fuel prices will continue to mean greater demand for new aircraft
IATA’s calculations showed that the consistently high price of fuel has harmed airline profits, with jet fuel remaining above $120 per barrel on average since 2011. With fuel 1/3 of the airlines cost structure, the increase in the aircraft order book to over 11,000 reflects the airlines willingness to invest in new and more efficient aircraft, despite potential lower profit margins, in order to cut a significant amount of its cost base.
Future global Aircraft Tracking takes another step
IATA also confirmed that it is part of an Aircraft Tracking Task Force (ATTF) set up by ICAO, and will be in a position to deliver draft options for enhanced global aircraft tracking in September 2014. With significant publication and media attention behind this work, the spotlight will be on the airline industry over the next few years to agree a new global deal.
As mentioned in a previous blog post, aircraft manufacturers and suppliers have key role to play in these developments to provide the technical knowledge and expertise required to implement short term measures, as well as developing longer term innovation and technology
Strong Airline support for Order backlog
CEO’s from across the airline industry also stated their support for the 11,000 strong order book, outlining that there was a ‘huge requirement for fleet replacement’ in mature markets, and ‘new aircraft from growth in emerging markets’. This offers a welcome boost for manufacturers – as flexibility in orders between mature and emerging markets is required, as global economic performance wavers.
