While wider political tensions dominated much of the agenda and continue to cause potential headaches for airlines, it was the return of a familiar problem in the shape of rising fuel prices that did the most to knock airlines from their high-profit altitude during 2018.
Fears of a potential trade war have circled following the Trump administration's introduction of tariffs on certain products aimed at Europe, Canada and, most notably, China. This has kept a threat hanging over potential global economic development, joining other concerns such as the relentless uncertainty around Brexit in Europe and political shifts in several other countries. Ultimately, though, it is only the rapid development of the Iranian airline market has directly been kyboshed by Trump policy, halting hoped-for aircraft deliveries.
Higher fuel costs, however, were to prove all too real for airlines. The barrel price of crude oil climbed a third over the course of the year, reaching the mid-$80s. While these more recently have dropped back sharply – moving below year-beginning levels by December – the higher oil price had already contributed to a string of profit warnings across the globe during the second half of the year as many carriers were unable to pass these additional costs through higher fares.
"This year has been tougher than we though it would be," says IATA chief economist Brian Pearce. "There was a quite a squeeze on airline margins in the second and third quarters because of the sharp rise in fuel costs."
But it still remains, relatively speaking, a profitable period for airlines. IATA expects industry profits to be only $5 billion lower in 2018 than the $37.7 billion the industry made in its record-breaking 2017.
Profits for the larger groups have proved particularly resilient. While there have, especially more recently, been airline failures, these have largely affected smaller operators on the fringes of the industry. Avianca Brazil, which filed for the equivalent of bankruptcy protection in December, is the largest operator to enter formal restructuring this year.
Airlines to cease operations this year included Primera, which was grounded before its attempts to tackle the emerging long-haul low-cost market on the Transatlantic had really begun.
That sector remains an area of much development, though still only a small part of overall capacity. Questions have surrounded the most high-profile European carrier in the segment, Norwegian, throughout the year, after IAG bid for the airline. Norwegian, which has long defied its sceptics, was emboldened by a stronger start to the year and resisted the bids. IAG remains a small shareholder, and potentially a buyer, with eyes continuing to watch developments over the winter.
And the year ended with attention surrounding the future of another player in that field, Icelandic operator Wow Air, after low-cost investment gurus Indigo Partners emerged as a potential white knight following the collapse of its proposed acquisition by Icelandair.
That was one of several rolling airline stories across the year. In Europe, Michael O'Leary's attempts to engage unions at Ryanair and overcome its operational issues continue to dominate headlines. The sprawling nature of its operations mean that despite getting several unions on board, there remains plenty of work to do. Unions too were a familiar problem for airline management at Air France-KLM – resulting in the early departure of group chief Jean-Marc Janaillac after a pay deal was voted down.
Meanwhile, more than a year after Etihad Airways Group pulled the plug on its investments in Air Berlin and Alitalia, those stories continue to play out. Jockeying for position in the battle for markets vacated by Air Berlin continues, notably at Berlin and Vienna, while the Italian carrier remains in restructuring with little clarity yet on its future.
New Etihad chief Tony Douglas spent most of the year focusing on the core airline’s challenges – taking direct management of the carrier in a group restructure – and showing little of the global appetite that dominated the group he inherited. Fresh talk of a mega Gulf tie-up with Emirates resurfaced, but with little outward evidence so far that there is any more political will to make it happen.
The United Arab Emirates and Qatar also settled their dispute on open skies with the USA, with imprecise statements of commitments regarding a lack of plans to add fifth-freedom flights. This, however, has done little to improve relations with their US counterparts. Indeed, Qatar Airways ended the year poised to act on its earlier threat to walk out of Oneworld, heaping much of the blame on its relations with American Airlines, whilst the US carriers have gone on the attack over Qatar's involvement with expanding Air Italy.
One airline that is definitely quitting a global alliance is SkyTeam carrier China Southern Airlines. The airline will not renew its membership of SkyTeam next year as it follows a strategy of pursuing partnerships with carriers around the global
Uncertainty surrounded China’s HNA Group for much of the year. The group, which like Etihad had made a number international investment in aviation companies in recent years, sold several assets during the year, as part of efforts to overcome liquidity problems.
It was another tough year in the Indian airline market, where over-capacity and fierce competition compounded the rising cost and weak currency environment. The year began with the failure to secure any bidders for a stake in debt-laden state carrier Air India, and was followed later by key players Jet Airways, IndiGo and SpiceJet all swinging to losses in the normally profitable second quarter. The high-profile problems at Jet in particular dominated headlines, as it embarked on a major restructuring and sought to raise capital.
Weak currencies also impacted a number of countries, notably in key economies Latin America where it is impact travel demand in Brazil and Argentina as a result. Elsewhere in Latin America much of the narrative was set by fast-expanding low-cost operators in the region.
In North America, United Airlines’ aggressive expansion policy began to pay off in what remains a profitable market for most carriers – if at slightly lower levels than recent highs. Indeed, United became one of the first US carriers to recoup the rise in fuel costs this year, boasting profit growth in the third quarter even with the higher expenses.
The biggest stir in the US market came when JetBlue and Azul founder David Neeleman confirmed plans to launch a new US start-up - though not until 2021. That was sealed when Neeleman struck a deal for Airbus A220s at this summer's Farnborough air show.
Meanwhile, it was a year of mixed news for airlines in terms of airport developments. Whilst Turkey’s new mega-hub at Istanbul opened – at least on a ceremonial basis at the end of October – worked stopped on the new Mexico City airport following a referendum launched by the country’s incoming president. A third runway for London Heathrow meanwhile inched closer with the UK government finally formally endorsing the plan.
Notably, the issue of a lack of diversity – and female representation in particular – among senior airline management moved up the agenda. That – or at the very least awareness of the issue – was further fuelled by the fallout following Qatar Airways chief executive Akbar Al Baker’s ill-judged joke during a press conference after the IATA AGM in Sydney. But Air France's appointment of Anne Rigail in December offered a hint change may be in the air
Source: Cirium Dashboard
