Airlines’ headline figures for 2017 were impressive, reflecting another year of rising traffic and growing profits in most regions.
To use sporting parlance, many chief executives would have taken that before the game started.
With this in mind, the year-end is a good time to stop and consider exactly what went well for the industry in 2017.
On a fundamental level, aviation has successfully offered a high-profile antidote to those highlighting the downsides of globalisation, including US president Donald Trump and advocates of a "hard" Brexit. For all Trump’s bluster on building a wall between the USA and Mexico, for example, air connectivity between the two countries has risen. As VivaAerobus chief executive Juan Carlos ZuaZua told FlightGlobal in September: “Build a wall and we’ll fly over it.”
In this context, IATA director general Alexandre de Juniac was right to repeat his belief that aviation is the “business of freedom” several times during the year.
Meanwhile, a ban on large electronic items on flights to Europe and the USA from the Middle East and elsewhere was dealt with sensibly by IATA, ensuring the measures were short-lived and the damage minimal. For an industry used to seeing temporary security measures become quasi-permanent arrangements – the ongoing liquids ban being an obvious example – this was an impressive outcome.
MAINTAINING PROFITS
Carriers have also shown resilience following their own missteps.
High-profile examples in 2017 include British Airways’ IT shutdown in April, which it blamed on a power surge. While profits took a small hit, the UK carrier continued to be a driving force as parent IAG reported record results.
European low-cost giant Ryanair, meanwhile, continues to expect a record financial year despite the hammering it received in the press following its pilot rostering woes and consequent flight cancellations.
It remains to be seen whether American Airlines chief executive Doug Parker was being overly optimistic when he said “I don’t think we’ve ever going to lose money again” at an investor day in late September, but his sentiment reflects an undeniable confidence among key airlines that they can ride the waves of internal and external challenges.
Another area of focus over the past 12 months has been cost-cutting. Large legacy groups across the world are feeling the pressure as low-cost carriers grow into new and existing markets, and airlines in developing markets challenge the old guard. On the latter point, witness Cathay Pacific’s need to respond to competition from state-owned carriers in China.
While this cost environment has brought tough challenges, a sharp and constant focus on trimming the fat will ultimately make airlines stronger and better able to cope with future difficulties.
Meanwhile, the chaotic consolidation under way in Europe is ultimately a good thing for the industry overall. The pain being felt by employees of carriers such as Alitalia, Air Berlin and Monarch during 2017 is clearly unfortunate, but the region will ultimately benefit from having a smaller group of stronger carriers.
Also in Europe, the industry is getting a strong of taste of what disruptors can do to a market, as Norwegian’s growth is challenged by IAG's start-up Level and others. For an industry that is exposed to accusations of glacial modernisation, such developments should be welcomed. They ultimately give passengers more choice and ensure every airline is innovating in terms of product.
Throughout 2017, low-cost and ultra-low-cost carriers also continued to shake up the short-haul flying products for the better. This impact was felt in multiple regions over the 12 months, with many network carriers waking from years of strategic slumber to find a much-needed focus on product strategy. In Asia, for example, Singapore Airlines consolidated its budget operations under the brand Scoot; in Europe, British Airways ended free food for economy passengers on short-haul routes, while staid Air France launched fashion-conscious operator Joon; and in the US, the big three legacy airlines continued to unbundle fares.
Even when that unbundling did not go to plan – United Airlines took a big financial hit, for example, when the rapid roll-out of fare changes backfired earlier this year – resilience allows the stronger players to bounce back.
CAPACITY QUESTIONS
Elsewhere, traffic trends have also been encouraging in 2017, providing at least short-term comfort to those expressing doubts about the huge capacity coming into the market in coming years. FlightGlobal data shows that traffic growth measured in RPKs is outpacing the rise in capacity in all global regions during 2017.
The robustness of load factors has also been crucial in offsetting a challenging fare environment, particularly as fuel costs returned to an upward trend over the course of the year.
For Middle East carriers, those rising fuel costs reflect rising oil prices – a positive development for a region where oil money drives so much economic activity. That will be welcomed by carriers such as Emirates, Etihad Airways and Qatar Airways as they face a “new normal” of slower progress after years of accelerated growth. It will be particularly helpful to the latter, as it continues to plot its strategy amid Qatar's diplomatic and airspace isolation in the region.
In macro-economic terms, 2017 also proved positive. Consumer confidence has been largely strong across the board, and developments such as the tentative economic comeback in Brazil – a market crucial to the health of the Latin American region as a whole – have been welcomed.
Another positive outcome, partly as a consequence of that economic robustness, has been the comeback in cargo markets. That has helped drive revenue increases, particularly in Asia-Pacific, where freight tends to take a bigger portion of revenue.
Security is another area where despite inherent volatility depending on region, there have been some positive developments compared with 2016.
Turkey could be back on the road to challenging the dominance of Gulf hubs following a tough 2016. Local carriers Turkish Airlines and Pegasus Airlines have returned to growth as Istanbul continues work on its crucial third airport.
In Northern Africa meanwhile, resorts in Egypt and Tunisia that have been affected by security concerns in recent years are beginning to look like viable tourist destinations again to a wider group of travellers.
UNDERSTANDING BENEFITS
Indeed, in Africa and other developing regions, the industry can still cite huge growth potential if – clearly a big “if” in some cases – certain challenges can be overcome around infrastructure and government understanding of aviation’s benefits. The past 12 months brought some positive moves in those areas, for example in Argentina, where the government ramped up its aviation liberalisation efforts and invested in airport improvements.
Perhaps most importantly of all, 2017 has been another strong year for airline safety. For an industry handling more than 100,000 flights per day, the incredibly low incident rate is no mean achievement. This is vitally important as capacity grows, considering safety perception surveys show most people judge industry performance on the overall number of incidents, rather than incidents as a proportion of total flights.
The resilience of the sector over the past 12 months is perhaps most significant because it is likely to face the same pressures – and who knows what else – again in 2018.
So while no one is suggesting carriers go into 2018 with blinkers on, it is important to recognise the positive stories when they happen. More than anything, many of the developments in 2017 have put airlines on a stronger footing for the likely challenges ahead.
Source: Cirium Dashboard
