IT IS A BELIEF UNIVERSALLY held among airline managers that, in an upturn, their own particular airline will perform better than its competitors, and that in a downturn it will suffer less. In general, this is bunkum, but it is an unfortunate truth that it is on the basis of this belief that most airlines base their fleet-planning.
In fact, there are very few airlines which consistently, over many years, outperform their competitors. The fortunes of most - like that of the industry as a whole - will fluctuate through good times and bad. For local reasons, a few will flourish counter-cyclically, but most will perform roughly in line with the average.
It would be a brave airline executive who would suggest that his airline will perform no better than average, especially in a boom. Instead such executives are under pressure to talk up the prospect of winning market share, yet if everyone follows suit, the industry's collective ambitions soon add up to more than 100%of the actual available market. Those who canvass airlines for their views must, presumably, be aware of the dangers of misplaced optimism and must, equally presumably, take account of it in aggregating their forecasts.
Even allowing for that degree of corporate caution, it is with considerable justification that the director-general of the airlines' own organisation, the International Air Transport Association (IATA), still finds it necessary to caution his members against the perils of buying too many aircraft. He is right, of course, to point out that, even now, at the apparent top of the current cycle, the world's airlines are suffering decreases in yields and profits. He is even more right to say that, at the apparent top of the current cycle, they increased their capacity faster than they filled it, where the reverse should have been true.
Some airline executives might seek to justify such contradictions by claiming that it is only in the good times that they can afford to acquire the new, efficient aircraft which will help them to survive the bad times. Others might seek to justify the contradictions by pointing to the long lead-times for popular aircraft, which mean that no matter how cannily an airline has managed its ordering cycle, the delivery cycle will probably be out of synchronicity with the prevailing business cycle.
It is against this background that the world's airlines are likely, in the next 20 years, to put at risk over $1 trillion (most of it, other people's money) of investment in new aircraft. In this they will be encouraged by the manufacturers (which hope to make a profit from supplying the aircraft) and the financiers (which hope to make a profit from supplying the money).
It is only from the likes of Pierre Jeanniot that they will receive the warning that they may be placing too much faith in their own optimism. It is unfortunately all too true, as he says, that: "-it is easy to buy aeroplanes. It is harder, but perhaps smarter, to not buy aeroplanes."
The difficulty for an airline lies in building the confidence that, having been prudent in buying as few aircraft as possible, it will be able to acquire more at short notice should its optimism of above-average growth be realised. For that, it must rely on others (airlines, manufacturers or leasing companies) having a surplus of aircraft which they are willing to make available. For the industry to be in balance, it would seem that there should be as many under-committed aircraft as there is unsatisfied demand for them, which means that somebody, somewhere must take the risk of over-buying.
The only result that IATA can hope to achieve is successfully persuading the airlines that it should not be they who bear that risk, but those whose business is the supply of aircraft. If the risk is left in those hands, it may be managed a little more effectively than by those operators to whom finance to acquire aircraft is far too readily available.
If more of the forecasting of future demand for airliners was in the hands of those who will have to pay for them outright, rather than in the hands of those who will merely use them, the predictions of increased demand might be realistic - or even pessimistic. If the result of pessimistic under-ordering was, however, an increase in load factors and yields, there would be few who could legitimately complain.
Source: Flight International
