Chicken Little Was Wrong
We all know it’s been a difficult year for commercial aviation. Given that oil is $115 per barrel and, in an atmosphere of mergers, acquisitions, and a weak dollar, many airlines have reduced their fleets, laid off employees, imposed baggage fees and taken other measures to stem revenue loss.
A recent blog post on Airline World regarding the state of the industry is positive that the sky is falling (pun intended). Its headline shouts, “Oil Crisis in the Airline Industry!” and the text of the blog highlights just about every piece of bad news that the writer could muster for his argument—specifically highlighting the massive job cuts and fleet groundings in North America. That headline may be a great way to draw attention but it seems a bit disingenuous to educated readers.
In contrast, the August 28 issue of the Aviation News e-newsletter (sorry, it’s not on the Web so I can’t link to it) shared a rather upbeat perspective regarding the aircraft manufacturing industry. The article cites a report by the International Bureau of Aviation, a UK-based consulting firm. According to Aviation News, IBA has concluded that “the aviation market is cyclical and despite downturns and external pressures, is resilient and should continue to grow albeit at a slower rate.”
The Aviation News article includes a complete list of reasons for optimism, but here are a few of the big factors:
• Today’s cycle is different as the order book is not heavily relying on the US operators, and demand for commercial aircraft is becoming more diverse geographically.
• Manufacturers, industry associations and other bodies are consistently forecasting a growth in the aviation market of between five and six per cent in the medium-term.
• Record new aircraft orders were placed by the airline industry between 2005 and 2007.
• The number of parked aircraft had stopped rising and is showing some signs of reducing.
From Enigma’s perspective, the future of the aviation market is murky but not bleak. There are two sides to commercial aviation, the manufacturers and the carriers. Evaluating each shows reasons for optimism as well as concern, but it seems clear that the sky is not falling.
Yes, there are severe economic challenges for the commercial aviation industry, particularly in North America and Europe. It’s also true that the cost of oil hurts all carriers, regardless of the geography they serve. However, the Asia-Pacific market continues to grow (albeit a bit slower). As for North America and Europe, once the economy adjusts to the new cost of transportation the demand for airline transport, whether for people or goods, is likely to rebound and grow rather than shrink.
