From failures to triumphs, 2018 has been a year of turbulence in the aviation industry. Alliances have been formed and broken, newcomers have soared to success, while old hands have struggled and failed. But what’s in store for 2019, and what can we expect from airlines?
Since 2014 aviation has been in something of a ‘golden age’, with plenty of profits, plenty of demand and enough business for everyone. However, such is the nature of the boom and bust cyclicality of air travel, 2018 was a little bit tougher on carriers large and small.
Rising labour costs, interest laden debts, increasing competition… none of this is going away in 2019. However, with planning and preparation, carriers should be able to build in enough resilience to absorb the impact of most of these issues.
IATA have predicted that airlines will make a profit in 2019 but have cut their profits target from $38.4bn to $32.3bn just this week. Although we all look at fuel prices to dictate the profitability of airlines, it’s actually demand, and therefore the economy, which will decide the fate of the carriers.
…but fewer failures
This year has been something of a record breaker in terms of the number of airlines going bust, as well as those struggling financially. Largely this has been down to instability in overhead costs, with fuel prices, labour costs and competitive pricing putting the squeeze on even the biggest players.
However, we reckon those who make it through the winter unscathed will probably be OK. 2019 is shaping up to be somewhat more stable than the previous 12 months. Oil is likely to remain at $70-$80, and there are unlikely to be as many external shocks adding to unexpected costs. With any luck, those airlines who are with us at the start of the financial year will make good choices and have a stronger year ahead of them.
Unprecedented fuel efficiency
Over the past few years we’ve seen an incredible improvement in the fuel efficiency of aircraft, and it shows too. Norwegian achieved the accolade of most efficient transatlantic carrier this year, thanks to their investment in newer aircraft (and their penchant for squeezing passengers in to every inch of space).
2019 will see the first test flights of the Boeing 777X, an aircraft which will likely be a game changer in so many ways. From its super-efficient twin engines to its ludicrously wide wingspan, it’s an aircraft designed to drive down operational costs. Seeing it take to the skies will be a highlight of our 2019 for sure, and we can’t wait!
Middle Eastern turbulence
Arabian Gulf airlines will undoubtedly be impacted by currency fluctuations, trade tensions and fierce competition, but are optimistic that they will continue to grow in the coming year. Speaking with the press, President of Emirates Tim Clark commented,
“We’ve seen that the global appetite for travel remains resilient, in spite of the patchy economic growth or geopolitical turbulence. People still want to travel. Consumers will simply re-calibrate their travel plans and we have to stay agile in how we deploy our capacity to best serve that demand.”
We’re expecting to see a slow recovery from the Middle East next year, as airlines restructure their operations to improve efficiencies. Etihad have said that, despite posting their second consecutive annual loss, they remain upbeat about the outlook for 2019. A spokesperson said;
“Etihad Airways has enjoyed a period of steady growth in the first and second quarters of 2018, however as the global market softened, this growth slowed in the fourth quarter. This is of course not unique to Etihad and is reflective of the situation across the industry. We predict that this trend will continue for at least the first quarter of 2019, however, remain cautiously optimistic for the rest of the year.”
The ‘B’ word
Europe is in desperate need of a joined up strategy on aviation. This year, every third flight in Europe was delayed, clearly showing the strains being placed on outdated infrastructure. In order to keep pace with superconnectors from outside of the region, investment and joined up thinking is the only way forward.
However, with Brexit looming and the European Single Sky agreement still a way off, political resistance to central management is only going to get stronger. As we write, there is still no post Brexit plan for aviation, therefore April is shaping up to be a defining moment in the future of European air travel.
We’ve seen the rise of Amazon Prime Air since 2015, when they first began trial cargo runs out of Wilmington Air Park. 2016 saw them purchase 20 Boeing 767s to begin freight services, making their hub in Cincinnati (CVG) and starting operations in April 2017. Rebranding as Amazon air in December last year, they’ve already begun to grow their fleet and services in the US.
Amazon has already committed to leasing an additional 10 aircraft throughout 2019 and 2020. They are investing $1.5bn in developing the CVG site, with phase one due for completion in 2020. Amazon’s goal is to have over 100 aircraft based at CVG with over 200 flights per day and 15,000 employees.
If all goes to plan, Amazon could be the next FedEx or UPS of the logistics world, having all the pieces of a major integrator firm already in place. From aircraft to distribution centres, drone deliveries to customer service; it’s just a small step to start moving people as well as boxes around.
More biometrics and AI
It’s been over a decade since e-passports or biometric passports were introduced in the US and the UK, but we’re predicting more biometric facilities in 2019. Used correctly, biometric immigration could speed things up immensely, not to mention improving security in airports.
With cost savings and efficiency improvements clearly on the radar for many airlines, using more artificial intelligence (AI) to improve the passenger experience will be key in 2019. Allowing passengers the tools to find their own seat, to pass through airports and to manage their travel with less human interaction will reduce the resources required by carriers to process their passengers.
With more than 900 airlines filing schedules with OAG, the marketplace is becoming increasingly crowded. Europe alone has over 220 airlines, and North America has 97. Such a range of suppliers is a lot for any industry, and in a capital intensive environment such as aviation, perhaps it’s too much.
Whether by failure, merger or strategic partnerships, we fully expect to see more consolidation of airlines during the course of 2019. A larger market share reduces network exposure and allows carriers to maximise their return on investment, so for those looking to survive into the future, it makes economic sense.
Is the US due for a major merger? Possibly. We’re looking at the potential of Jet Blue, Alaska and Hawaiian Airlines potentially seeking a tie up to strengthen their reach and their profits. Or perhaps it will be an LCC merger instead, with Spirit, Allegiant or Frontier seeking to combine forces?
Value for money
We’ve watched the rise and rise of ‘premium economy’, with many carriers either introducing it, sprucing it up or considering it in the very near future. Too many seats and not enough passengers will push prices up, but if airlines can cut out a few seats and sell a few more for many more dollars, they’ve knocked that problem on the head.
Whereas the last few years have seen a head-to-head price war between airlines, we’re seeing a change in the priorities of passengers too. Complaints around legroom have spiked, with the FAA due to introduce a minimum seat size at some point next year as a result.
In general, passengers are more willing to pay a little more for their ticket in order to obtain a better service, a more comfortable seat or improved facilities. We predict that the priority for 2019 will be value rather than pure and simple price.
What do you think we can expect from aviation in 2019? Let Simple Flying know in the comments!