AIRLINE INDUSTRY CONTINUE TO BENEFIT FROM LOW ENERGY PRICES AND DEMAND
THE CHANGING FORTUNE OF AIRLINE INDUSTRY
The world airlines industry is one of most important industry which has contributed to the economic growth of the world by connecting and transporting people and goods from one corner of the world to the other corner of the world in the fastest possible time among all other mediums of transportation.
However due to multiple reasons (*) the Airline Industry has been grappling with losses and poor return on capital forcing many companies to either shut down or having been taken over or gone to government for bail out.
*(over capacity , competition , high costs due to lack of infrastructure and government and other statutory bodies charges , fuel costs ( decreased now ) , high cost of manpower , predictability of route wise passengers etc. )
The situation has thankfully changed and a major milestone was achieved at the industry level when airlines generated a return on invested capital exceeding the cost of their capital. In real terms, a $35.3 billion net profit on revenues of $718 billion.
However this spread of profitability is not even and
a )Geographically about two-thirds of the industry’s profits are generated by airlines based in North America.
b )Also while passenger traffic is enjoying robust growth, the cargo business continues in the doldrums.
The Global Revenue has grown from USD 413 billion to USD 701 Billion in 2016 and the number of passengers and cargo during the same period grew from 2139 million to 3959 million and 40.8 freight million Tonnes to 55.7 .
The Net Profit increased to 29.8 Billion from a loss of 4.1 Billion and Return on Capital Employed improved from 3.3 to 7.9 percent because of two main factors which are :
a ) The fuel price came down from USD 71 to USD 52.1 and
b ) Load factor improved from 75 % to 79.8% ( passenger ) and 61.8 to 66.1 % ( Cargo )
LARGEST AIRLINES
The largest Airline in the world in terms of Revenue is American Airline followed by Delta and United .
Out of the 10 top Airlines 4 Airlines are from Unites States followed by China with 2 and 1 each from Germany , France , Spain , UAE and Japan.
In terms of passengers however Ryan is the number one Airline in the world.
Market Capitalization
Delta Airlines and Southwest Airlines rank highest in terms of customer satisfaction which is reflecting in it's high ratios of Market/Rev and Market/Net Profit.
Measuring Operating Performance in the Airline Industry
Revenue passenger miles/kms, or RPM/RPK : This is the number of revenue passengers multiplied by the distance these passengers travel in the reporting period. It’s also called “traffic.” This metric defines the demand for air travel and is influenced by macro factors like GDP growth, per-capita income, and disposable income.
Passenger mile/KM yield: This metric is calculated as passenger revenue divided by the RPM. If we can consider the RPM as volume, we can consider yield as the average price.
Average seat mile, or ASM: This is a measure of capacity calculated as the number of seats available multiplied by the distance traveled during a period. Capacity can be increased by increasing the number of flights, adding new routes, or increasing the frequency of flights.
Load factor: This is a measure of capacity utilization and it’s calculated as the number of seats occupied divided by the total number of seats.
Passenger revenue per available seat mile, or PRASM: This is called the “unit revenue” and it’s calculated as the passenger revenue divided by the ASM.
Cost per available seat mile, or CASM: This is the operating cost per ASM
FUTURE OUTLOOK
The International Air Transport Association (IATA) expects 7.2 billion passengers to travel in 2035, a near doubling of the 3.8 billion air travelers in 2016. The prediction is based on a 3.7% annual Compound Average Growth Rate (CAGR) .
The forecast for passenger growth confirms that the biggest driver of demand will be the Asia-Pacific region. It is expected to be the source of more than half the new passengers over the next 20 years. China will displace the US as the world’s largest aviation market (defined by traffic to, from and within the country) around 2024*.
India will displace the UK for third place in 2025*, while Indonesia enters the top ten at the expense of Italy. Growth will also increasingly be driven within developing markets. Over the past decade the developing world’s share of total passenger traffic has risen from 24% to nearly 40%, and this trend is set to continue.
( Source : IATA )Key facts (all figures based on central growth forecast)
Fast-growing markets
The five fastest-growing markets in terms of additional passengers per year over the forecast period will be - China (817 million new passengers for a total of 1.3 billion)
- US (484 million new passengers for a total of 1.1 billion)
- India (322 million new passengers for a total of 442 million)
- Indonesia (135 million new passengers for a total of 242 million)
- Vietnam (112 million new passengers for a total of 150 million).
Regional growth
- Routes to, from and within Asia-Pacific will see an extra 1.8 billion annual passengers by 2035, for an overall market size of 3.1 billion. Its annual average growth rate of 4.7% will be the second-highest, behind the Middle East
- The North American region will grow by 2.8% annually and in 2035 will carry a total of 1.3 billion passengers, an additional 536 million passengers per year
- Europe will have the slowest growth rate, 2.5%, but will still add an additional 570 million passengers a year. The total market will be 1.5 billion passengers
- Latin American markets will grow by 3.8%, serving a total of 658 million passengers, an additional 345 million passengers annually compared to today
- The Middle East will grow strongly (4.8%*) and will see an extra 244* million passengers a year on routes to, from and within the region by 2035. The UAE, Qatar and Saudi Arabia will all enjoy strong growth of 5.9%*, 4.7%, and 4.1% respectively. The total market size will be 414 million passengers
- Africa will grow by 5.1%. By 2035 it will see an extra 192 million passengers a year for a total market of 303 million passengers
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