A number of conflicting factors are influencing air travel’s future, said Brian Pearce, IATA’s Chief Economist.
World growth remains lackluster, but demand for air connectivity is still strong. Consumers are seeing increasing value as fares fall in real terms, and investors are experiencing returns above the cost of capital. But the industry’s profits are not spread evenly.
Pearce called the 2% world growth “stall speed” and suggested that positive forecasts may be premature. Debt overhang and a retreat from globalization continue to dampen prospects.
All consumers are getting ever-increasing value from air travel
“As an industry, we need to extol the virtues of open borders,” he said.
There are pockets of strong aviation growth, however, and price stimulation has worked better than expected.
In six or seven years’ time, it is likely that Chinese outbound tourism will leap ahead of outbound tourism from Germany or the United States. This emergence of what Pearce described as “remarkable growth” is shifting aviation’s center of gravity further eastward.
In 2004, it was over the North Atlantic, giving significant advantage to European hubs. Today, it is closer to the Gulf.
US carriers are doing well but Latin American and African carriers are struggling
But all consumers are getting ever-increasing value from air travel. Fares have more than halved in real terms in the past 20 years even as the number of unique city pairs has more than doubled.
This increased choice not only improves the flow of people but also the flow of trade, capital, and ideas.
Profit is still hard to come by for an airline, though. US carriers are doing well but Latin American and African carriers are struggling.
“Balance sheets are slower to repair than profit and loss accounts,” Pearce noted. “Balance sheets are vulnerable because there is a lot of debt out there.”
IATA’s New Distribution Capability (NDC) is opening up new ways for airlines to do business
IATA’s Chief Economist concluded with a key question: is the industry in for a period of normality or will disruptive influences take hold? He suggested three possible factors that may shape the next few years.
The first is whether airlines in other regions can replicate the success of US carriers. Consolidation is a major theme in this regard, which led to Pearce’s second consideration; ownership and control rules.
Cross-border joint ventures have happened in Asia and Latin America and there is continued pressure on restrictive ownership regulation.
Finally, Pearce suggested the empowered consumer could be decisive. Fortunately, IATA’s New Distribution Capability (NDC) is opening up new ways for airlines to do business. Transparency and personalization could be vital to future success.