Improving Consumer Confidence Drives Growth in Passenger Volume, Says Frost & Sullivan

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Jan 11, 2010, 11:17 ET

SINGAPORE, Jan. 11 /PRNewswire/ -- 2009 has been one of the worst years for the airline industry. Most airlines throughout the world have been in the red, and only in the third quarter of 2009 were there visible beginnings of some passenger airlines returning to the profit zone. Air Cargo carriers have suffered further with reduction in revenue ranging as high as 20-25%. Interestingly during the period of the third quarter, carriers flying between major hubs around the globe saw the highest load factor. The period also saw some legacy carriers being profitable while low cost carriers were making losses.

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According to Frost & Sullivan Asia Pacific Consultant of Aerospace & Defense Practice Soumyajyoti Basu, the profit figures quoted by some of the Chinese airlines in the 3rd quarter are a direct effect of economic stimulus given by the Governments. "This trend is set to continue going into 2010. However, airlines come late in the business cycle. Hence, as the world comes out of the recession, the airlines industry will follow with a lag of a few quarters. The downside risk of a double dip US recession affecting the airlines sector is less pronounced."

He continues, "We believe the shift in the core of aerospace activities have already happened to the Asia Pacific region, and the Asian Economies having shown signs of decoupling from the Western Economies, a second phase of US recession should not affect the airline industry as badly."

Moving into 2010, Frost & Sullivan sees the airlines choosing their networks carefully. "Profitable routes would drive growth while loss-making ones would be closed. At this point, we expect major existing hub-to-hub business networks will continue generating traffic," Basu says.

The outlook for the airline industry in 2010 is of restrained optimism. Airlines are expected to see a slight improvement on the passenger traffic seen in 2009 and late 2008 while Asia Pacific is going to continue being the region of high growth.

Basu adds, "Consumer confidence is improving and this should drive growth in passenger volume. Business travel should also grow in the second quarter of the year as commercial activities grow further. This should also be the quarter when cargo traffic should see the levels of those seen in 2008."

"The biggest challenge for the airline industry is the volatile fuel price. As the demand for oil increase with rebounding economic activity, oil prices are once again going to head north. Passing on the costs to the passengers might not be a good solution to the problem," he continues, "Another major challenge is the presence of a larger number of airlines within a small competitive space. This excess competition is driving everybody towards losses."

Overall, 2010 is expected to be a better year for the industry. However, it is still skeptical if the boom time numbers would be regained in 2010. The economic recession is set to bring in some structural changes in the industry dynamics.

"In the coming years we should see some amount of consolidation in the form of mergers & acquisitions and network optimization. Such steps hopefully would put the airline industry on a sustainable path," says Basu.

About Frost & Sullivan

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