As we begin the month of June, let's take a look at the economic outlook for the remainder of 2019, deals and expansion in the airspace and technological rumblings.
2019 Demand & Economic Outlook
Last week IATA held its annual general meeting in Seoul where they re-forecasted their 2019 outlook. IATA announced a downgrade of its 2019 outlook for the global air transport industry to a $28 billion profit (from a $35.5 billion forecast in December 2018).
Due to rising oil prices, labor costs and weakening world trade, margins are being squeezed. In 2019 overall costs are expected to grow by 7.4 percent, while revenues will only reach 6.5 percent growth, resulting in net margins of 3.2 percent (down from 3.7 percent in 2018).
Total passenger demand is expected to grow by 5.0 percent (down from 7.4 percent in 2018). This has resulted in airlines trimming capacity expansion to 4.7 percent.
Something also concerning the industry is the rise of nationalism and protectionism.
“Aviation needs borders that are open to people and to trade. Nobody wins from trade wars, protectionist policies or isolationist agendas. But everybody benefits from growing connectivity. A more inclusive globalization must be the way forward,” said Alexandre de Juniac, IATA’s Director General and CEO.
One area in which this appears to be manifesting itself is with the renewed importance of national airlines in Europe.
Deals & Expansion
We're already seeing the ramifications from geo-political happenings. Boeing has been negotiating one of the largest orders ever of wide-body jetliners with Chinese airlines. However, the deal could be derailed because of trade war conflicts between U.S.A. and China.
In what is probably the biggest pending deal in the aviation space, there's been a new turn in the Air Transat selling process. Last week, we learned Air Canada made a bid for its fellow-Canadian carrier, but that bid has since been one upped.
Another major deal being negotiated is the potential sale between Bombardier Inc. and Mitsubishi Heavy Industries Ltd. Mitsubishi is in talks to buy Bombardier's CRJ regional jet business, which would mark Bombardier's exit from commercial aviation space.
In an effort to improve U.S. air transportation, the U.S. Department of Transportation announced $840 million in infrastructure grants to 381 airports in 47 states.
Speaking of which, TAP Portugal has North American Expansion plans.
In what is a deal in the tech space, Amadeus has invested in Volantio, a company that helps airlines improve their overbooking problem.
Following Delta and United from the U.S., Lufthansa becomes the first European airline to adopt dynamic pricing for award seats.
AirAsia has put in significant time and resources towards digitalization in an effort to save costs and enhance revenue.
“On the revenue side, with all the rich data we have, we are able to serve customers better in terms of personalizing all that. We have never done promos, as we normally send e-mails, but now we will be much more proactive in filling up the planes," said AirAsia Group CEO Tony Fernandes.
But that's not all the airline has been up to. They are also forging ahead into the OTA space, but the online travel incumbents are not happy.
According to IATA, by the end of next year, more than 20 airlines will use New Distribution Capability (NDC) solutions for at least 20% of their indirect sales. If you're looking to learn more about NDC, check out one of our latest articles in which we look into its impact.
Best of the Rest
- JetBlue Senior Executive Marty St. George Is Leaving the Airline
- Ryanair claims it is greenest airline in Europe on emissions
- Southwest pilots endorse FAA’s proposed MAX training
- KLM To Retire All Boeing 747’s By 2021
- American Airlines CEO reveals why he engineered 2 of the biggest airline mergers in the last 20 years