Airlines faces a downturn that will put weaker carriers out of business despite the sector nearing a high point in the trade cycle, a leading aviation economist has warned.
Centre for Aviation (CAPA) chief financial analyst Jonathan Wober told the CAPA World Aviation Summit in Helsinki: “We are somewhat at the top end of the cycle and it won’t last forever.”
Wober reported a global operating profit by airlines of 4.6% in 2014 and described this as “at the upper end of the cycle”.
He forecast an annual profit rate of 5.9% for the sector this year and said: “Annual operating margins have not exceeded 6% in four decades.”
North American airlines were “outperforming” the market, said Wober, but he described the European sector as “a laggard” and Asia as “in decline”.
He said: “The fleet growth trend is up. Oil prices will probably stay low. But six years after the financial crisis global GDP has yet to reach the long-term trend rate and there are uncertainties in the global economy.
“There is a better level of capital discipline, with airlines using cash to pay down debt and return some capital to shareholders. But return on capital [still] fails to meet the cost of invested capital.”
He warned: “We will have a downturn.” However, Wober added: “There are too many airlines, so that will be a good thing. It is a kind of stress test on restructuring.
“Weaker players will exit the market. Stronger airlines will be able to buy the weaker at a lower price. Maybe there will be pressure to relax restrictions on [airline] ownership and control.”