There is renewed optimism for the airline industry, going by the latest industry body Geneva-based International Air Transport Association (IATA) forecast that 2013 will see an improvement in global airline profitability from US$6.7 billion to US$8.4 billion. This has been revised from an earlier estimate of US$7.5 billion.
IATA chief economist Brian Pearce said: “I think we are past the low point, which was earlier this year.”
The positive mood was encouraged by last quarter’s slightly higher economic growth and slightly lower fuel prices than expected. Of course, there remains the caveat that fuel prices continue to be volatile and susceptible to hikes and the world economy is moving slowly, if at all it is recovering. These are valid reasons to be maintain caution and not raise your hope too high.
IATA director-general (DG) Tony Tyler admonished: “It is of course good news that the outlook is moving in a positive direction, but let’s keep the figures in perspective. The industry is keeping its head above water. But only just.”
Indeed, the past few years have demonstrated how the industry has been saddled with more uncertainty than confidence moving forward. But starting the New Year on a positive note may in itself give a much needed boost to the morale as the airline business has been lolling in the doldrums for far too long. Nothing can be worse than when the airlines under the difficult circumstances try to adjust to the gloom and stay with it rather than shake themselves out of it. They need to get back into active competition instead of finding solace in knowing that they are not alone in hard times.
A light is finally in the far horizon. In the next couple of years, the industry will be invigorated with airlines making plans to upgrade cabin products to include more comfort in premium class and enhanced in-flight entertainment (IFE) in all cabins. There will be increased Wi-Fi availability. British Airways (BA) has made it possible for gate-to-gate in-flight entertainment so that you can log in to a movie as soon as you board and watch it until you are ready to disembark. Major airlines are jostling to boast the latest in entertainment technology.
Singapore Airlines (SIA) for one, in a race to “remain at the forefront of airline product innovation”, announced last year it would be developing the next generation in-flight cabin products that include new seats and in-flight system.
Major US carriers such as United, Delta and American will introduce seats that can be converted to flat beds on cross-country flights, a feature that is already available on international flights.
Ground facilities such as airport lounges will get a makeover. In the works are Delta’s terminal at JFK, London Heathrow’s Terminal Two that will be dedicated to Star Alliance member airlines and the New Doha International Airport.
United Airlines chief executive Jeff Smisek said: “In 2013, you will start seeing a lot of product development. We have not caught up for many years of underinvesting.”
The New Year is likely to see a re-focus on the premium product even as budget travel continues to grow, particularly in Asia/Pacific as the region’s countries such as Indonesia adopt a more liberal open skies policy. However, after a frantic year of racing to launch new budget upstarts – whether they are wholly-owned subsidiaries or joint-ventures, among them Scoot by SIA, Jetstar Japan by Qantas/Japan Airlines, and AirAsia Japan by All Nippon Airways/AirAsia – most of the major airlines may now feel more assured that they have had that market segment sufficiently covered. If IATA’s optimism holds steady, then it is the full service market that will drive the competition.
Cathay Pacific Airways is rolling out a new regional business class to give “more comfort, versatility for short flights” according to chief executive John Slosar. It aims to retrofit its entire fleet by end-2014 (“Cathay Pacific to be a smarter & leaner airline in 2013“, 3rd Jan, 13).
Qantas’ mega-alliance with Emirates Airline is indicative of where the competition is heading, not the budget short-haul but major air passages such as the kangaroo route. Alliances will continue to be forged for combined strengths and wider network reach. Transatlantic, Delta Air Lines is awaiting approval of its acquisition of a 49% stake in Virgin Atlantic. Take it from Virgin founder Richard Branson who said: “We realised for the long-term stability of Virgin Atlantic we needed to look at an alliance partner.” Until now, Sir Richard Branson was an opponent of airline alliances because he considered them to be anti-competitive.
According to IATA, US airlines will continue to improve their profitability while European carriers collectively will break even. Now that is good news especially for Europe, considering its long-running saga of the euro debt crisis. Asia/Pacific, hitherto touted as the region of growth, will turn in mixed performance but “overall profitability has not deteriorated as much as expected, despite weakness of cargo markets.” With 40% of the global cargo market, the region’s carriers are most exposed to weak cargo demand which has adversely affected the bottom line of carriers such as Cathay and SIA. All other regions are also expected to show improved profitability, even if it is marginal.
Yes, indeed, it is always good to start the New Year on a positive note. All said, it is still a long year ahead to be concerned about unexpected turns in the road. The industry has got used to frequent forecast revisions, which unfortunately were trending down in the past; hopefully, the trend is now reversed.