AIRLINES


Flying forecast


Airline confidence and investment is good news for customers, but plenty of challenges lie ahead


By GARY NOAKES L


IKE AN ENGLAND MANAGER BEFORE A MAJOR FOOTBALL TOURNAMENT, airline bosses were buoyant and optimistic in early 2016, talking up the year ahead.


The industry hasn’t quite had the disas-


trous year that former England boss Roy Hodgson has had, but it’s fair to say that the optimism of the early part of 2016 is a little diminished. First came a sharp rise in oil prices; then the unexpected in the form of the UK doing a Hodgson-style exit from Europe with the vote for Brexit. This, plus terrorist attacks in countries includ- ing Belgium, France, Turkey, the US and Bangladesh, and November’s US Presidential election, mean that the next few years are impossible to predict. Until now, the world’s major airlines have enjoyed a rare period of stability and prosper- ity and for the majority, that looks set to


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continue for a while yet. There will be some that are knocked back – Turkish Airlines, for example, will doubtless feel the effects of the country’s failed military coup and terrorist attacks for some time – but generally, most are making money; and that’s good news for buyers and passengers, because carriers are investing. As they do so, the product gets better and as things like big seats in premium economy become the norm, then competition becomes more about price, which is even better news.


UNKNOWN FACTORS


Before we look at what individual airlines are up to, let’s examine why they are sud- denly getting a little apprehensive about the future. The big unknown is terrorism, but there are some more quantifiable factors at work. First, the price of oil is up by around 70 per cent since the start of the year. That kind of


increase would normally be enough to give accountants shivers, but oil began 2016 at an exceptionally low rate, at around US$25- US$30 a barrel. The year’s average price is forecast to be around US$52, which is still way below the US$80-US$100 a barrel that carriers became used to in the past five years. In its latest half-year statement, Easyjet at- tributed a 4 per cent fall in costs due to fuel, a significant boost to the bottom line given that profit margins in bad years can be in the low single figures.


Airlines are loathe to predict the future publically, and American Airlines vice- president Fernand Fernandez is no excep- tion, saying only that “the airline business is cyclical” and that it is “too soon” to understand what Brexit means. He does, however, point to the airline’s US$8 billion fleet investment and another US$3 billion in onboard product improvement, so for a while at least, the money is still being spent.


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