Flight Ascend Consultancy expects global passenger growth to moderate in coming years, but does not foresee a crisis looming for the aviation industry.
Speaking during a recent industry briefing in Hong Kong, FlightAscend’s head of consultancy Rob Morris pointed out that, year-to-date, global airline traffic was up 5.8%, compared to last year’s growth rate of 6.7%, and the recent long-term average of 6.2%.
“The aviation demand cycle does remain strong, but trends suggest we may be close to the peak, and the more I think about this, the more I think we are just past the peak,” he said.
“We might end up with a traffic growth rate of around 5% or so this year, and that is the start of a slow settling which might take us down below the long-term trend next year,” he added.
Morris says that IATA has predicted that capacity will lead demand in a number of regions this year, with the exception of Asia-Pacific, where demand is still leading capacity.
However, there are some concerns that is being driven by discounting from Asian carriers to boost their load factors.
“To some extent there may be an element of yield pressure in there, so pricing is clearly driving some of that demand. That’s a zero-sum game, you can’t keep driving down price forever,” said Morris.
For most carriers in the region, the lower price of fuel has given them some respite from the potential margin decline. Nonetheless, Morris noted that there is an expectation that profits will fall in the near-term.
“IATA themselves indicate that the second quarter of this year was likely to be the top of the airline profit cycle, and we subscribe to that view.”
In light of that, he says that the major aircraft manufacturers need to ensure that they adjust their output to match any potential slowdown in demand in coming years.
“It feels balanced right now, but it feels like maybe we are headed for an oversupply scenario if the OEMs don’t think about their production rates if the demand side turns down,” Morris added.
Source: Cirium Dashboard
