London, June 23, 2009: A widening gap between available capacity and market demand will plunge airlines into deeper economic recession unless the prevailing rate of planned aircraft deliveries is curtailed.
At the same time, the prospect of state financial support for ailing carriers looks increasingly likely.
These are two of the key messages reported from the recent International Air Transport Association (IATA) annual general meeting in Kuala Lumpur by Nyras Senior Associate and top industry analyst, Chris Tarry.
The 500 industry leaders gathered in the Malaysian capital expressed “little disagreement” that the industry would emerge from economic downturn in a different size and shape – and in a restructured form, he said.
“Despite expectations, there is a fundamental question which relates to how this will be, not least when there remains a very significant and real risk that currently-planned deliveries will increase capacity by 17 per cent over the next three years – unless there is a meaningful cut in planned delivery rates,” Chris stated in his analysis of the IATA AGM.
While a number of individual airlines had already slipped the timing of some deliveries, he continued, the delivery changes were still only really at the margin.
“If deliveries continue broadly unabated, the consequent increase in the amount of capacity relative to demand at the pricing levels most airlines need will result in a further change in industry economics, with the outcome that even fewer airlines will have a chance of producing an adequate – let alone satisfactory – return even at the peak of the next cycle.
“This will further reduce the number of airlines that are attractive to investors for even a short period. Difficulties will be created for many airlines needing to strengthen balance sheets by raising new capital,” Chris stated.
The AGM analysis also raised the prospect of government financial support for airlines.
“Although there have been some 18 airlines that have failed so far in 2009, we fear there will be more to come. Despite the view being expressed that the industry does not want bail outs, when the chips are down, stakeholder issues and the importance of the air transport industry rise to the top of government agendas. As we expect the operating environment to become more difficult before it gets easier, more governments may find it necessary to support the airline industry,” said Chris.
|
|
Against the background of an expectation that the industry would “transform itself and emerge stronger” the reality was that only a small number of airlines would achieve this as a result of earlier decisions, as well as ones taken in the current environment.
“Unfortunately for many, the expected transformation and emergence as a stronger airline should not be assumed necessarily to be the case; and indeed, in the near term, we fear it will get more difficult before it gets easier. In this respect, we share the view that the facts fail to support the optimists,” Chris stated.
A full version of Chris Tarry’s IATA AGM analysis will appear in the July edition of Airline Business magazine.
For further information, contact:
Tony Cocklin
Nyras Capital
Golden Cross House
8 Duncannon Street
London WC2N 4JF
Tel: +44 (0)20 7484 8770
Mob: +44 (0)7786 968956
E-mail: tony.cocklin@nyrascapital.com
Web: www.nyras.co.uk |
