Tuesday, June 9, 2015

Growth, Profitability and Timing Lifts Airline Industry

Tyler addresses the executives Photo by IATA
Writing from Miami - It seems strange to me that under the guidance of the soft spoken and urbane Tony Tyler, the airline industry should be experiencing its strongest growth and profitability but there you have it. Just four years after the former chief of the International Air Transport Association, Giovanni Bisignani nominated himself the best director general of the association ever in the pages of his book, Shaking the Skies, in waltzes his polar opposite and actually sees much of  Bisignani's big wish list getting accomplished.

Yes, it’s a happy group of global airline bosses here in Miami and why not?

  • The industry is growing
  • The industry is profitable
  • The industry is seizing control of its future

Tyler may be steering a wise course, but there's a happy confluence of factors leading to the accomplishment of first two items on the list. The emerging economic strength of developing regions of the world like Asia Pacific and South America is a large part of the booming demand for air travel.

Akbar Al Baker of Qatar with journalist Scott Hamilton
The Gulf carriers with their jumbo jets and sparkling new airports, who are grabbing bigger slices of this pie also claim to be making a bigger pie and not just in their turf. This is how many New Yorkers now find themselves flying Emirates to Milan for a 3 day weekend. Credit too, to the low cost carriers, Norwegian, EasyJet, JetStar, among them for creating new flyers with their too-low-to-say-no fares.

Ethiopian gets the 787 and joins Star Alliance
And as I reported a few years ago for The New York Times,  export credit loan guarantees for new airplane purchases have turned many airlines in less affluent nations from hangers-on flying American cast offs into airlines with young fuel-efficient planes to rival any first world country; Copa, Royal Air Maroc and Ethiopian being just three examples.

Leveraging the power of the public’s increased appetite for air travel (and yes, I realize this is a 2 edged sword) airlines are getting smarter about how they sell seats and other services. Travelers may grumble but gosh almighty, they do want to fly. So baggage fees, change penalties and higher fares aren’t pushing down demand just raising airline profitability. 

At a briefing on airline economics at IATA’s annual general meeting yesterday, Brian Pearce told us for the first time since the trade association started keeping track, the industry’s return on investment was higher than its cost of capital. This is common in other industries, he said, but not in aviation.  

Which leads to the next notable development here at the IATA’s 71’s annual meeting. Airlines seem to be grasping with both hands and a new zeal to regain control of their industry from all the players who feed at its trough. Government restrictions and taxes, sure, but another example is the new campaign by Lufthansa, Delta and others to re-direct travelers to the airline’s own ticket sale venue rather than online travel agents.

Here in Miami, where Pam Am ruled the skies for years, I am reminded of its legendary boss Juan Trippe, who like other aviation executives of his era swaggered through the halls of power calling the shots and telling governments how it was gonna be. That’s a distant memory for today’s beleaguered airline chief who answers to many masters.  

But as profits rise and newer, fuller planes take to the skies, success seems to be in the wind. If Tyler’s message isn’t significantly different from Bisignani's, his methods and the lucky convergence of world events are providing a more effective route to achieving airline goals.

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