April Aviation Travel
3
April 2011 | the gulf 56 travel AviAtion AviAtion Adopting the brace position Gulf airlines are bracing themselves for the impact of persistently high oil prices and the threat of a new oil shock to the industry’s recovery T he Intrnational Air Transport Association (IATA), t airlin industry’s main trad body, as nvr bn sy about talking up t prils o an oil sock. evn in May 2005, wn a barrl o Brnt Crud st you back just $50, IATA was calling jt ul “T Fit horsman o t Apocalyps”. But wit Middl east unrst now pusing oil prics to doubl tat lvl, t group’s latst warning as toucd a nrv wit airlin bosss. T last tim crud passd t $100 mark t world was tumbling into its dpst rcssion or dcads, and w industris it t ground ardr tan civil aviation. In 2009, as global nancial markts bgan pulling tmslvs back rom t abyss, air trac was still alling at its astst rat sinc rcords bgan. Cas-strappd olidaymakrs wr opting or “staycations ”, businss trav l- lrs wr downgrading to conomy and stuntd conomic activity was coking o dmand or cargo. All told, t industry lost $9.4 billion. Today, wit mmoris still rs o t 30-plus carrirs tat wnt bankrupt, IATA’s big ar is tat a nw oil sock could triggr a rturn to t dark days o 2009. At rst glanc t data is alarming. For vry $1 addd to t pric o crud, t industry’s annual ul bill soars by $1.6 billion. Most airlins us uturs contracts to lock in prics or t yar aad, but vn atr dging IATA still xpcts ul costs to ris by $10 billion in 2011. Wit a nt prot margin o just 1.4 pr cnt, or $8.6 billion, urtr oil volatility could asily snd t industry into t rd. Gul airlins may sm wll placd to ost ul prics, owing to tir bnign tax nvironmnts and low mploy cost-bas. But xprts say tir compti- tiv dg as bn bluntd sinc 2009. Wras t rgion’s airlins mad rapid xpansion t cornrston o tir businss modls – wit emirats alon placing ordrs or 90 Airbus A380s – rivals in europ and Amrica took t opposit pat. In ordr to watr t downturn, most o t world’s lumbr- ing airlins bcam lanr outts, drawing synrgis rom consolidation and dploying an arsnal o cost-cutting masurs. Britis Airways xmplis tis transi- tion bttr tan most. In addition to its mrgr wit Spain’s Ibria, t fag carrir introducd a wav o ancillary cargs, axing vryting rom r mals to baggag allowancs. Labour costs wr also cut, wit pilots’ wags and cabin crw complmnts bot alling atr t rcssion. Ts industry-wid cangs lpd ostr a buoyant rcovry last yar, wn worldwid nt prots cam in at $16 billion. But wit tir impact alrady actord into IATA’s orcast or 2011, prssur is building onc again or igr prot margins. “Tis yar t industry is prorming the cudrum r Gul arles, rela year--year gr w h, s hw bs yelds whu sufcag demad a balancing act on a vry tin tigt-rop o a 1.4 pr cnt margin,” IATA as warnd. “It is a structural problm tat t industry as acd ... ovr t last our dcads. Tr is vry littl bur or t industry to kp its balanc as it absorbs socks.” Attmpts to maintain quilibrium in t ac o an oil sock will now ing on tigt yild managmnt and a rnwd ocus on surcargs – bot by Martin Rivers [email protected]
Transcript of April Aviation Travel
8/7/2019 April Aviation Travel
http://slidepdf.com/reader/full/april-aviation-travel 1/2
April 2011 | the gulf 56
travel AviAtion
AviAtion
Adopting thebrace positionGulf airlines are bracing themselves for the impact of
persistently high oil prices and the threat of a new oil
shock to the industry’s recovery
The Intrnational AirTransport Association(IATA), t airlin industry’smain trad body, as nvrbn sy about talking up
t prils o an oil sock. evn in May2005, wn a barrl o Brnt Crud styou back just $50, IATA was callingjt ul “T Fit horsman o tApocalyps”.
But wit Middl east unrst nowpusing oil prics to doubl tat lvl,t group’s latst warning as toucd anrv wit airlin bosss. T last timcrud passd t $100 mark t worldwas tumbling into its dpst rcssionor dcads, and w industris it tground ardr tan civil aviation.
In 2009, as global nancial marktsbgan pulling tmslvs back romt abyss, air trac was still allingat its astst rat sinc rcords bgan.Cas-strappd olidaymakrs wr
opting or “staycations”, businss travl-lrs wr downgrading to conomy andstuntd conomic activity was cokingo dmand or cargo. All told, tindustry lost $9.4 billion.
Today, wit mmoris still rs o t30-plus carrirs tat wnt bankrupt,IATA’s big ar is tat a nw oil sockcould triggr a rturn to t dark dayso 2009.
At rst glanc t data is alarming. Forvry $1 addd to t pric o crud,t industry’s annual ul bill soars by
$1.6 billion. Most airlins us uturs
contracts to lock in prics or t yaraad, but vn atr dging IATA stillxpcts ul costs to ris by $10 billionin 2011. Wit a nt prot margin o just1.4 pr cnt, or $8.6 billion, urtr oilvolatility could asily snd t industryinto t rd.
Gul airlins may sm wll placd toost ul prics, owing to tir bnigntax nvironmnts and low mploycost-bas. But xprts say tir compti-tiv dg as bn bluntd sinc 2009.
Wras t rgion’s airlins mad
rapid xpansion t cornrston o tirbusinss modls – wit emirats alonplacing ordrs or 90 Airbus A380s –rivals in europ and Amrica took topposit pat. In ordr to watr tdownturn, most o t world’s lumbr-ing airlins bcam lanr outts,drawing synrgis rom consolidationand dploying an arsnal o cost-cuttingmasurs.
Britis Airways xmplis tis transi-tion bttr tan most. In addition toits mrgr wit Spain’s Ibria, t fag
carrir introducd a wav o ancillarycargs, axing vryting rom rmals to baggag allowancs. Labourcosts wr also cut, wit pilots’ wagsand cabin crw complmnts botalling atr t rcssion.
Ts industry-wid cangs lpdostr a buoyant rcovry last yar,wn worldwid nt prots cam inat $16 billion. But wit tir impactalrady actord into IATA’s orcast or2011, prssur is building onc again origr prot margins.
“Tis yar t industry is prorming
the cudrum r
Gul arles, rela
year--year
grwh, s hw
bs yelds whu
sufcag demad
a balancing act on a vry tin tigt-ropo a 1.4 pr cnt margin,” IATA aswarnd. “It is a structural problm tatt industry as acd ... ovr t lastour dcads. Tr is vry littl buror t industry to kp its balanc as itabsorbs socks.”
Attmpts to maintain quilibrium int ac o an oil sock will nowing on tigt yild managmnt and
a rnwd ocus on surcargs – bot
by Martin [email protected]
8/7/2019 April Aviation Travel
http://slidepdf.com/reader/full/april-aviation-travel 2/2
the gulf | April 2011 57
travelAviAtion
Emraes hked ares acrss all secrs March
o wic could b ard or Gul carrirsto swallow.
Back in 2009, most o t world’sairlins rspondd to altring dmandby slasing tir rout ntworks, cuttingrquncis and grounding plans. Att tim, rtrncmnt o t sctor’sig ovrads mad prct sns
givn t dart o passngrs.But wn popl startd rturning to
t skis, constraind capacity took ona nw appal. By limiting sat availabil-ity, airlins could prop up load actors– a masur o ow ull tir planswr. Industry cis undrstood tatt narrowr t gap btwn supplyand dmand, t igr ty couldpus passngr yilds (avrag arspr mil travlld).
In sort, t stratgy was to fy wrplans, but ll tm wit igr-paying
passngrs. And wit oil now squz-
ing prot margins onc again, vidnco t sam approac is mrging.
IATA last mont downgradd itscapacity growt stimat or 2011 to6 pr cnt – just a smidgn abovxpctd dmand growt o 5.7 prcnt – wic in turn tripld passngryild growt orcasts to 1.5 pr cnt.
Alongsid imprssiv load actors o 78pr cnt, tis consrvativ managmntaims to minimis t risk o opratingal-mpty, loss-making figts.
US carrirs wr rst o t mark,largly bcaus o tir distast or uldging. Domstic ars ros six timsbtwn January and Marc, wilormrly-bullis talk o growt groundto a alt. elswr, t list o intrna-tional airlins upping ul surcargsgrows wkly.
evn in t Middl east, wr
capacity constraints ar anatma to
t rgion’s xpansion plans, tr arsigns o passngrs bing tappd orxtra rvnu. emirats ikd arsacross all sctors in Marc, ollowddays latr by Qatar Airways’ dcision to
introduc a nw ul surcarg.T conundrum or airlins – particu-
larly tos in t Gul, wic ar rlianton yar-on-yar growt – is ow to boostyilds witout suocating dmand. It isr tat t issu o ul prics comsull circl, as t gratst trat to tracrmains oil-drivn stagfation.
Unlik vryday infation causd byconomic growt, oil spiks av adfationary as wll as infationaryimpact. Consumrs av lss monyin tir pockts vn as t cost o
goods and srvics starts to ris,making it ardr to justiy discrtionaryxpnditur on travl. Witout buoyantdmand, passngr yilds all by twaysid and t industry's saty ntcoms crasing down.
Saj Amad, an aviation analyst basdin London, says tat t immdiatars may b ovrdon. “It is still muccapr to fy today in ral trmstan 25 yars ago,” nots. “Wilt nt ct will s som lastic-ity in dmand, ovrall it will not b a
long-trm trndsttr.”howvr, Amad cautions tat t
outlook rmains sobring: “T actis ig oil prics ar r to stay,irrspctiv o gopolitical turmoil.I tat mans going back to closd-door protctionist policis tat supportairlins, t aviation industry is liklyto say, ‘So b it’.”
Rgardlss o wat appns to oilprics, Middl eastrn conomis arrigtly nrvous about t impact o rcnt vnts on civil aviation. egyptAir
is xpcting to los 80 pr cnt o itsincom tis yar du to t xoduso lisur and businss travllrs. Anycontagion to t Unitd Arab emirats,wr 20 pr cnt o gross domsticproduct (GDP) coms rom aviation,would b dvastating.
T cancllation o Barain’s FormulaOn Grand Prix is just on xamplo tourism taking a dirct it. I sucincidnts rcur across t rgion,passngrs won’t nd t xcus o ig ars to kp tm away rom t
Middl east.<
