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eAnalyst January 2012
Welcome to the latest edition of IATA’s quarterly eAnalyst.
The eAnalyst is designed to provide a concise and insightful guide to the current key issues in the global airline industry.
The airline industry is poised to face a number of risks in 2012. In December 2011 IATA revised down its forecast. The prospect of economic contraction in Europe is very real, with financing problems persisting for many governments in the Eurozone. Other regions are in better shape but with further weakness anticipated in Europe, we have revised down our forecast for industry profits in 2012 from $4.9 billion to $3.5 billion. Our latest survey of airline CFOs in January showed business confidence expectations for the coming year to be pessimistic. In fact expectations indicate profitability and travel are expected to decline to levels experienced in early 2009.
Chris Tarry takes a look at several of the issues facing the airline industry in 2012. He discusses the deterioration he expects by looking at particular concerns that lay within three important performance drivers - economic factors, the airline environment and airline management. Oliver Wojahn takes an academic look at the important issue of over-capacity by presenting a series of arguments – including principle-agent problems, barriers to exit, economies of scale and state influence – to explain why investment persists in the airline industry. Finally, our research paper looks into industry structure, and discusses the benefits of alliance relationships – in particular joint ventures - both from the potential gains to efficiency and also improvements to customer service and fares.
I hope you find it to be an interesting and informative read.
Brian Pearce
IATA Chief Economist
INDUSTRY PERFORMANCE AND OUTLOOK
Airline Performance Threatened Financial Markets
During Q3 airline financial performance was reasonably good by historic standards, with a sample of 60 airlines reporting net profits of $5 billion. Looking ahead, the expectation is less positive. Our central forecast for the airline industry... [more]
Airline Sentiment Continues to Decline
Airline industry confidence has continued to decline in IATA’s January survey of CFOs and heads of cargo. There was a particularly sharp decline in expectations for traffic growth... [more]
ANALYST VIEWPOINT
Back to where we were – but if so then what next?
A time of continuing change
by Chris Tarry, CTAIRA
The airline industry outlook for 2012 may be gloomy and familiar for many airlines. Chris Tarry seeks to discuss some of the external and managerial assumptions which underpin the pessimistic outlook, and he categorizes his arguments into three sections... [more]
QUARTERLY RESEARCH
The economic benefits generate by alliances and joint ventures
With many customers demanding a ‘from anywhere to anywhere’ service, alliances between airlines on international markets have become a dominant feature of the airline industry… [more]
KEY POLICY ISSUE
Explaining over-capacity in the airline industry
By Oliver Wojahn
The airline industry has suffered from insufficient profitability for many years, and since 2000, it has failed to cover its cost of capital. These results, however, appear to be somewhat incompatible with another feature of the industry… [more]
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