As the Farnborough Air Show approaches, leading aviation consultancy IBA, analyses current trends and issues its predictions for the remainder of 2018 as part of its general market update.
Macroeconomic outlook, OEM activity, aircraft orders, fuel and lease rates are some of the key themes that IBA addresses in this month"™s report. The main topics that stand out are predicted Farnborough Air Show orders as well as mid-market aircraft trends, and operator profitability.
Has airline profitability peaked? According to IBA, there are mixed signals at play – positive metrics including traffic growth, vibrant new markets, and a buoyant SLB market seem to indicate that strong net profitability will continue. However, with the gathering clouds of creeping fuel prices, rising interest rates, wage inflation and increasingly price sensitive passengers, a different picture begins to emerge. Mid-2018 fuel prices are $15 higher per barrel than IATA predicted, a 40% increase year on year.
Base airfares and yields have generally stabilised since the sustained decline seen in recent years. Stronger economic conditions, leading to higher passenger demand have been offset by increased competition thereby causing base fares to be held back. IBA suggests that airline costs are expected to rise which would result in an upward trend in yields.
With the use of its airline scoring system, IBA has identified a number of airlines that are operating with negative margins and may find the times ahead particularly difficult. IBA predicts that if costs continue to rise, more airlines may begin to feel the squeeze later in the year.
IBA"™s mid-market analysis indicates that there is a gap in the market in terms of pricing range and payload, however it is not clear if the gap is as large as some have estimated. Further analysis is required and IBA will continue to conduct research around the market potential for a New Midsized Aircraft (NMA)…
