Business World

Saturday 29 April 2017

Airline industry enjoys its 'best year since the Wright brothers'

The academic said that last year North American airlines recorded profits of $22.48 (€21.14) per passenger compared to European carriers generating profits of $7.55 (€7.10) per passenger
The academic said that last year North American airlines recorded profits of $22.48 (€21.14) per passenger compared to European carriers generating profits of $7.55 (€7.10) per passenger

Gordon Deegan

THE commercial airline industry across the world last year enjoyed its most lucrative year "since the Wright Brothers" to record revenues of $751bn (€706bn).

However, aviation expert, Dr Frankie O'Connell said the airlines managed net profits of only $35bn (€32.9bn) on the revenues.

Addressing the 7th Annual Tourism Policy Workshop at Dromoland in Co Clare, the Cranfield University academic said the level of profits enjoyed by the airlines "is shocking to be quite honest. The margins are way, way, way too tight".

Dr O'Connell attributed the record year to the low price of oil, but told his audience that there is "too much competition" in the airline industry.

"Airlines are under phenomenal pressure," he said.

Dr O'Connell said the most profitable airlines were based in the US where they account for 58pc or $19.4bn (€18.2bn) of total profits.

He said European airlines generated $6.9bn (€6.4bn) in profits followed by Asia Pacific airlines accounting for $5.8bn (€5.4bn) of overall profits.

The academic said that last year North American airlines recorded profits of $22.48 (€21.14) per passenger compared to European carriers generating profits of $7.55 (€7.10) per passenger.

"Why are the American carriers making so much money? Well, you have four carriers - United, American Airlines, Delta and Southwest - controlling 80pc of the domestic market," he said.

Dr O'Connell said the US carriers were controlling capacity and increasing capacity by only 1pc per year.

He said there was protectionism taking place on the North Atlantic routes and "that is why they don't like Norwegian Airlines going in there".

He said Norwegian Airlines has 2pc market share on the North Atlantic but has had to wait three years to be allowed to fly to the US from Ireland and one year for its UK licence. He said such applications are usually concluded within two months. However, looking at the global picture, Dr O'Connell said air travel has doubled every 15 years.

"By 2030 it will double again and tourism will be the main sector to benefit," he said.

Dr O'Connell said the global fleet totals 19,580 and this is expected to increase to 39,820 by 2035 - that includes the need for a "whopping" 33,070 new aircraft.

The academic said the new planes will be worth around $5trn (€4.7trn) over the next 20 years.

He said this presents a huge opportunity for Ireland's aircraft-leasing sector.

"This sector has been a huge success story for Ireland," he said, adding that companies based here account for 50pc of all leased aircraft across the world.

Dr O'Connell said 40pc of all aircraft operated by airlines is leased.

"By 2021, this will be 50pc, which is very good news for the aircraft-leasing firms," he said.

He said a large part of the growth in commercial air travel will come from Asia and emerging markets.

Dr O'Connell said the ambitions of the Gulf carriers, Emirates, Etihad and Qatar Airways will ensure more established carriers such as Singapore Airlines and Cathay Pacific "are in the fight of their lives".

He said the three Gulf carriers have 195,852 "wide-body seats" on order compared to 43,596 for British Airways, Lufthansa and Air France.

Irish Independent

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