Airline industry about to boom predicts The Economist

Contrary to popular belief, this week’s Economist predicts that the airline industry is poised for an almost unprecedented boom.  Most headlines in other media suggest that the opposite is true.  The world’s airlines have lost a cumulative $43 billion in five years.  Terrorism, war, disease, the dotcom bust and the 50% rise in oil prices have all contributed to these losses. Most of America’s airline industry is currently bankrupt.  Despite all this, The Economist argues that aviation is booming.
 
“Although American carriers are still deep in the red,” says The Economist “ in the rest of the world airlines are holding their own.  Many big carriers in Europe and Asia are doing amazingly well.”  If oil prices had not risen so much then the industry as a whole would have more than recouped this year all the loses it has been making since 2001.  If oil prices start to fall again this will add to airline profits.
 
Traffic volumes are growing too.  International traffic has risen by 8.3%.  In America, total traffic is up by 5.4%; in Europe the rise is 6%.  In Asia, IATA (the international air transport association) is forecasting continuing annual growth of 6.8% through to 2009.  The airlines carrying these new millions of passengers will use the profitable business model of low-cost carriers.  “Perhaps the most conclusive indication of brightening skies is the boom in aircraft orders that is stretching Boeing and Airbus production plants to the limit,” says The Economist.
 
Another positive sign for the aviation industry is the number of new low-cost airlines that are appearing around the world.  In Europe there are now around 50, and the no-frills phenomenon is spreading to Asia and the Middle East.  In India, passenger numbers have risen from 48.7m to 59.3m thanks to the arrival of new airlines such as Kingfisher and Spice Jet.  In China consolidation has already taken place; seven small airlines have been folded into the big three – Air China, China Eastern and China Southern.  Chinese carriers are reporting an increase in profits.  Eastern Europe sports some of the fastest traffic growth in the world, with Poland set to grow even faster than China.
 
With this huge growth in air traffic around the world, profits should continue to rise but it is important to keep up the momentum.  According to The Economist, the best way to keep things rolling would be to have global liberalisation of air travel.  This would mean, for example, allowing more American carriers to use London’s Heathrow airport.  “If America and Europe could create an open market around the Atlantic, the whole regulated structure of global aviation would crumble and the industry that gave birth to globalisation could itself finally join the movement,” concludes The Economist.

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