By Mark Pilling in Paris
“It’s time to sell, ladies and gentleman,” was the blunt message to IATA’s 62nd AGM in Paris from David Bonderman, founding partner of Texas Pacific Group, the airline investment vehicle that has helped revive or launch carriers like Continental Airlines, America West, Ryanair and Tiger Airways. For Bonderman, now is not a good time to back airline ventures. “This is as good as it gets in the airline industry and it’s only going to get worse,” he added.
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| Texas Pacific's David Bonderman warns that last year was the peak of a cycle |
And Bonderman is true to his word. Texas Pacific is being selective about its airline investments at present, he said, with its stake in Singapore’s Tiger its only recent venture, while it is backing another low-cost start-up in an as-yet undisclosed location. “We’re investing in markets where there is room,” he said. Texas Pacific has also sold most of its stock in Ryanair, and only holds a low single-digit stake.
Describing investment decisions as “a cyclical call”, Bonderman believes the industry is probably at the peak of the cycle and that the next move will be downwards. “It has been the same phenomena every six to eight years since the Wright Brothers,” he said. Pointing to last year’s huge orders for Airbus and Boeing, he said this is “almost the perfect predictor of the top of the cycle. In two years time you are going to see everyone cancelling those airplanes.”
At the AGM, IATA increased its forecast for industry losses this year to $3 billion from $2.2 billion. But, based on the latest ICAO revenue data, it has sharply reduced last year’s loss figure from $6 billion to $3 billion, mainly because of how ICAO accounted for losses at United Airlines.
“We are starting to see some light at the end of a six-year tunnel – some cautious optimism,” said IATA head Giovanni Bisignani. “While the fuel price continues to race ahead of efficiency gains, it is amazing that profitability has not deteriorated from last year.
“We must remember that the strong revenue environment – 10% annual growth over the last three years – is also fragile,” said Bisignani. The price of oil remains the “wild card”, he added. ■
Source: Airline Business
