2014: A Mixed Year

It is the festive season. There are glad tidings. Internationally, oil prices have been going down and the trend is likely to be sustained in 2015 too with the full-year average price of Brent crude expected to be $85 per barrel. Aviation turbine fuel prices are slated to average $99.9 per barrel in 2015. This is certainly a critical element for an airline, making it or breaking it.

In the backdrop of oil prices and economic growth, the International Air Transport Association (IATA) has projected that airlines would post a collective global net profit in 2014 of some $19.9 billion, up from the $18 billion projected in June and is expected to touch $25 billion in 2015. Even while fuel prices are coming down, there is increased activity on the part of the original equipment manufacturers (OEMs) to improve fuel efficiency of aircraft while operators are strategising to enhance operational efficiency. IATA said lower oil prices and stronger worldwide GDP growth are the main drivers behind the improved profitability.

AVERAGE RETURN FARES DROPPING

The consumer who is the king will benefit from such activity. It is estimated that after adjusting for inflation, average return airfares excluding taxes and surcharge are expected to fall by some 5.1 per cent on 2014 levels and cargo rates are expected to fall by 5.8 per cent, which is welcome by passengers and the trade.

The IATA Director General and CEO Tony Tyler said: “The industry outlook is improving. The global economy continues to recover and the fall in oil prices should strengthen the upturn next year. While we see airlines making $25 billion in 2015, it important to remember that this is still just a 3.2 per cent net profit margin. The industry story is largely positive, but there are a number of risks in today’s global environment – political unrest, conflicts and some weak regional economies – among them. And a 3.2 per cent net profit margin does not leave much room for a deterioration in the external environment before profits are hit.”

As per the report, aviation’s global connectivity spans 16,161 city pairs which is nearly double the number in 1994. This connectivity is a catalyst for economic benefits including employment that is expected to reach 2.45 million in 2015, up 1.5 per cent on 2014.

2014 INTERNATIONAL HIGHLIGHTS

The mysterious disappearance of Malaysia Airlines Flight MH-370 on March 8, 2014 while flying from Kuala Lumpur to Beijing with 239 passengers and crew has gone down in the annals of history as one of the worst unexplained airline disasters. The woes of Malaysia Airlines did not end there. On July 17, MH-17 flying from from Amsterdam to Kuala Lumpur is believed to have been shot down in conflict-ridden Ukraine airspace, killing 283 passengers, including 80 children.

There were three other major commercial airliner accidents – TransAsia Airways Flight 222 crash killing 48 passengers on July 23; Air Algerie Flight 5017 crash in Northern Mali killing 118 passengers and crew on July 24 and Sepahan Airlines Flight 5915 crash in Iran killing 39 passengers. The two incidents involving Malaysia Airlines have shocked the airline industry, raising issues of air space security and safety.

ORDERS GATHER MOMENTUM

The first half of 2014 was quiet, but it was the second half which brought in cheer. The Farnborough International Airshow provided the required momentum for the industry to move ahead. Orders and commitments for commercial aircraft touched over $130 billion with the two aerospace behemoths – Airbus and Boeing – taking the lion’s share of the orders (over $115 billion in orders between them). As fuel efficiency and lower lifecycle costs are becoming increasingly important in this highrisk business, Airbus announced the launch of the A330neo which promises to deliver a 14 per cent improvement in efficiency, 400 nm range enhancement and lower per-seat costs. The aircraft is due to enter service in late 2017.

Regional jet and turboprop manufacturers also chipped in with strong performances with over 200 orders and commitments spread between Embraer, Bombardier, ATR and Sukhoi. Embraer emerged as the most successful of the regional aircraft manufacturers, announcing deals for 100 of its new E-Jets E2 family. ATR leads the turboprop market over Bombardier.

AIRLINES THAT CEASED OPERATIONS

Some of the airlines which ceased operations in 2014 for different reasons are Air Alps (Austria), Skybridge Airops, Krohn Air Norway; Dobrolet airlines (Russia); Happy Air and Siam General Aviation (Thailand); JetKonnect (India) and American Connection and World Airways.

TOWARDS A GREENER AIRCRAFT

With air transport contributing about three per cent of global greenhouse gas emissions and air traffic expected to triple by 2050, Clean Sky 2 (CS2) has been launched. The CS2 joint technology initiative runs from 2014 to 2024, bringing together companies, universities, public laboratories, innovative SMEs and the European Commission to develop and demonstrate breakthrough technologies for the civil aircraft market to cut aircraft emissions and noise.

INDIAN SCENARIO

The Indian civil aviation sector in the past few years has been having mixed luck. 2014 has been no different. Turbulence continued with the year beginning on the wrong foot. The US Federal Aviation Administration (FAA) downgraded the industry on grounds of safety, impacting Indian carriers such as Air India and Jet Airways which have direct connections to the US. These carriers have had to undergo additional safety checks and stringent scrutiny.

INDIGO MAINTAINS RUN

All airlines, except IndiGo, were in the red. IndiGo created a record of sorts again by placing an order for 250 Airbus aircraft. Jet Airways, awaiting finalisation of its deal with Etihad Airways, shed its low-cost arm JetKonnect, while two new airlines AirAsia India and Vistara, both having equity from the Tata group, with foreign tie-ups joined the five scheduled operators. Malaysian budget carrier AirAsia and Tatas along with Delhi-based entrepreneur Arun Bhatia, started AirAsia India. Going into the full service carrier segment, Tatas have joined hands with Singapore Airlines to start Vistara which is expected to take wings soon, having got its air operator permit.

FINANCIAL WOES

Even as these two new airlines made news, there was trouble brewing for SpiceJet which some analysts were hoping that it would not go the Kingfisher way that ceased operations a year ago. SpiceJet has got help from the government to tide over its financial crisis, albeit temporarily. Meanwhile, news is that it is getting an investor. SpiceJet had to reduce its fleet size to 26 from 35 earlier this year and has had to cancel flights, affecting passengers. The government has stepped in to ensure that SpiceJet keeps flying.

State-run Air India, which is undergoing a restructure, had a highpoint this year with it joining Star Alliance. Another positive aspect for Air India has been that between January and October it ferried 55 million passengers, a healthy growth of 8.61 per cent over the 50 million in the same period previous year.

As IATA has stated that the Asia-Pacific region is going to be a driver of the aviation sector, Tyler concludes “It is no understatement to say that air connectivity underpins modern economies. Aviation and aviation-enabled tourism accounts for over 24 million jobs and $500 billion in economic activity across the Asia-Pacific region. And that contribution has tremendous potential to grow.”