Dubai: Couple Brexit with uncertainty on global economic growth and geopolitics, and 2019 isn’t looking so bright for the global aviation industry.
After a challenging 2018, analysts said they expect to see much of the same issues in 2019, with consolidation steps expected for European airlines after the likes of Monarch and airberlin filed for bankruptcy. Gulf airlines may fare better, though, but are expected to feel the toll of economic uncertainty.
A number of the Gulf’s airlines are seeing new aircraft types entering their fleets which will improve their efficiency.
“It’s been a challenging year for the industry on the geopolitical front, ranging from Brexit uncertainties to trade sanctions. Fuel prices have also risen significantly, which has added to costs and hit profitability,” said John Strickland, aviation expert and director of JLS Consulting in London.
Oil prices have been on the rise for most of this year, jumping from around $67 (Dh246) at the start of 2018 to a high of $86 a barrel in early October. That 28 per cent spike over 10 months caused concerns in the industry, even resulting in lower forecasts for profitability as fuel costs continue to account for a bulk of airlines’ total costs.
Brent crude prices have dropped since October, however, falling to around $53 a barrel at the end of December 2018.
28%Oil price hike in the first ten months of last year
“The year ahead will see a continuation of characteristics seen in 2018 and there are likely to be more consolidation steps in Europe. A number of the Gulf’s airlines are seeing new aircraft types entering their fleets which will improve their efficiency and offer new market opportunities,” Strickland told Gulf News via email.
Gulf carriers, prominently flydubai, are receiving deliveries of Boeing 737 MAX aircraft they had ordered earlier, with the airlines already announcing new destinations they plan to deploy the aircraft to.
Besides fleets, Middle Eastern airlines are expected to report $800 million in net profit in 2019, according to forecasts by the International Air Transport Association (Iata), up from the projected $600 million likely to be reported in 2018.
4.1%Expected capacity growth in the region this year
In its latest outlook report, Iata said the region has been challenged by the earlier impact of low oil revenues, conflict, competition, and setbacks to certain business models — all of which have led to a “sharp slowdown” in capacity growth.
“The region reported 4.7 per cent capacity growth in 2018 and is expected to slow to 4.1 per cent in 2019, which together with restructuring, is helping to generate a recovery,” Iata said in a December report.
Looking at the Gulf’s airlines more specifically, Andrew Charlton, managing director of Geneva-based Aviation Advocacy, said global factors will have an impact on operations.
“Emirates will need to continue to cut its cloth to fit the circumstances but will also take advantage of its new fleet and great position and airport,” he said. “Etihad will continue to work its way through its issues and look to 2020. It also has a young fleet, a very solid and respected Business class, a new Economy offering, and a new airport terminal coming on stream in late 2019/2020.”
More broadly, the global aviation industry will continue to see strong demand as more people want to travel. Iata expects around 1 per cent of the global gross domestic product, or some $900 billion, to be spent on travel in 2019.
But travel trends may change.
Aviation Advocacy’s Charlton said passenger appetite may shift towards shorter, cheaper flights. For airlines, that will mean even stronger focus on cost efficiency and service.
“Notwithstanding the uncertainty, there is no reason to predict that citizens will not want to travel. If the past is any guide, the want to travel is only likely to increase not decrease,” Charlton said.
Dubai: From volatile fuel prices to political uncertainties across the world, 2019 is looking like a tough year to forecast. The one thing analysts do agree on, however, is that Brexit will be a key challenge for the aviation industry.
As the March 2019 deadline approaches and the United Kingdom gets ever closer to leaving the European Union, the uncertainty that continues to surround Brexit is unhelpful, experts said.
The International Air Transport Association (Iata) described questions around the value of globalisation as “deeply concerning.”
“Brexit is tied to this general theme. We don’t have any special insight on how this will play out. But we do know that the industry needs more clarity than we currently have,” said Alexandre de Juniac, chief executive officer and managing director of Iata.
Speaking at an event in December, de Juniac said that speed in finalising formalities for a post-Brexit Britain is essential, especially as the UK receives critical goods by air and as airlines are already selling tickets for travel post March 2019.
“There is no World Trade Organisation fallback for aviation in the event of a no-deal Brexit,” the CEO said. “So it is good news that the UK is making progress on renegotiating bilateral deals with non-EU countries and that it is discussing contingency measures with the EU.”