The latest decade has been one of relative stability for the aviation industry, but the tide has almost certainly now turned, and it is certainly not for the better. A rise in fuel costs, increased global trade restrictions, political uncertainty and the potential for excess capacity have been among the biggest influencing factors from the past 18 months. But, what can we expect for the year ahead? What are the risks and opportunities in 2019?
CAPA – Centre for Aviation attempted to address those questions with its World Aviation Outlook Summit, which had more than nine hours of agenda content designed to provide a market outlook for 2019 and review the commercial and operational pillars that will drive global airline strategic decision-making.
Here, in part one of our video review of the event, we highlight the first of the panel sessions…
Europe Market Outlook: Slow And Steady Wins The Race? The Ongoing And Gradual Restructure Of The European Airline Market
Although Europe has experienced some notable waves of merger and acquisition activity in the last 14 years – such as the Air France/KLM and BA/Iberia mergers and various Lufthansa Group acquisitions – the region remains one of the most highly fragmented airline markets globally. There are more airline groups operating in Europe than in any other region in the world and their profitability is lower compared with, for example, the tightly controlled North American market. Any consolidation to date hasn’t led to any meaningful change in the structure of the European airline market, nor has the disappearance of several airlines led to greater market concentration. Clearly, consolidation has been slow and steady, but the region’s top groups wield the power and capital to significantly speed up the process. Is this on the horizon or will consolidation activity continue to amble along at its current pace?
Digital Outlook: True, Fast And Profitable Innovation – Speeding Up The Transformation Of The Industry
The digital economy has transformed consumer expectations around the way they research, purchase and experience the airline product. As a result airlines need to work hard to differentiate their product offering and deliver a personalised and seamless experience for customers throughout the entire travel process. With airlines starting to see themselves as digital companies rather than just transportation companies enabling passengers to get from A to B, there is now a greater inclination for experimentation, with many airlines (and manufacturers) leaning on creative tech start-ups to find solutions for their technology, operations and customer service problems. This is creating interfaces between large aviation organisations and the growing global travel tech scene. Agility and out-of-the-box thinking seems to be the USP for many start-ups aiming to develop and market business model innovations for the aviation industry.
The Outlook For UK-Europe, The Trans-Atlantic And Open Skies: How Are Airlines Preparing For The Post-Brexit World?
The UK’s exit from the EU is fast approaching – yet uncertainty remains. The European Commission has maintained that when the UK leaves the EU it will also leave the single aviation market, meaning the UK will have to negotiate a new bilateral air service agreement with the rest of the bloc in order to ensure traffic rights for its airlines. It must also negotiate new bilaterals with 17 non-EU countries where rights are currently granted under EU agreements. The most important of these is a renegotiation of the UK-US deal, which is set to govern the rules of engagement for flights between the two countries across the highly lucrative trans-Atlantic market. The three major JV groupings that operate on the trans-Atlantic depend on open skies for them to gain antitrust immunity to operate in the UK market, the largest premium route. But the extent to which the UK will be restored to open skies once it leaves the EU remains to be seen, with US pilot unions conspicuously vocal in their concerns about some of the liberal provisions of open skies. Aside from labour organisations, EU governments could undo the great strides taken over the years in liberalising international traffic rights, in order to protect their flag carriers from bigger competitors encroaching further on home markets.
The Great Debate: Can Aviation Unions Be A Force For Good?
All major European carriers have overhauled their cost structures in the last decade or so in the face of liberalisation, the rise of LCCs and increasing competition. Each wave of change has been met with inevitable resistance from traditional labour forces, who have had a comparatively disproportionate impact on the aviation sector compared with other industries, in the process stymieing management restructuring efforts (and massively disrupting everyday operations) for the sake of workers’ rights. Already fractious relations between airline management and labour associations have reached a tipping point. The international nature of the aviation market has seen some airlines apply more relaxed labour laws from other jurisdictions regardless of where their employees are based. EU based unions for example have called out Ryanair and Norwegian for employing non EU crew on EU registered aircraft and have fought for a ban on what they deem “social dumping”. At the same time, there is also rising demand for a diminishing pool of human resources, as LCCs expand and full service carriers busily set up new subsidiaries. So – while airline managements still need to drive down costs, this is more challenging now in the context of looming pilot shortages. How will the relationship between management and unions evolve under these challenging conditions?