India to benefit as global airline industry gears up for a stronger 2017
AIBM
India’s regional sky is now a lucrative investment prospect for global airlines
While the global airline industry is poised to witness the all-time highest absolute profit in 2016, India with its new civil aviation policies emerges to be a wealth of opportunities over the next year.
The International Air Transport Association (IATA) expects the global airline industry to make a net profit of USD 29.8 billion in 2017. This will be the third consecutive year (and the third year running) in which airlines will make a return on invested capital (7.9 pc) which is above the weighted average cost of capital (6.9 pc). IATA revised its initial profit projection for 2016, from USD 39.4 billion to USD 35.6 billion, owing to slower global GDP growth and rising costs.
The Indian government was hailed for its reforms in the civil aviation sector. Allowing 100 pc Foreign Direct Investments (FDI) is not the end of all issues. The IATA chief, Alexandre de Juniac complemented the Modi-government for the plans but also added that implementation would be critical and he will be keen to see the execution coming to fruition.
Expressing his views on the profitability of the airline industry in 2017, de Juniac was very hopeful irrespective of the many uncertainties the industry might face. “Airlines continue to deliver strong results. Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning USD 29.8 billion. Indeed, risks are abundant — political, economic and security among them. And, controlling costs is still a constant battle in our hyper-competitive industry,” said de Juniac, the Director General and CEO at IATA.
Asia Pacific region still promising
The airlines in the Asia-Pacific region are expected to generate a net profit of USD 6.3 billion in 2017 (down from USD 7.3 billion in 2016) for a net margin of 2.9 pc. Capacity offered by the region’s carriers is projected to grow by 7.6 pc, ahead of a forecasted growth in demand of 7 pc. The expansion of new model airlines and progressive liberalisation in the region is intensifying an already strong competition. In addition, profitability varies widely across the region.
“Air transport is the business of freedom. The safe and efficient global movement of goods and people are a positive force in our world. Aviation’s success betters peoples’ lives by creating economic opportunity and supporting global understanding. We must stand firm in the face of any rhetoric that would put limits on aviation’s future success,” de Juniac added.
Skies opening up for India
In the recent International Civil Aviation Negotiations (ICAN) 2016 held in Nassau, India signed Open Skies agreement with six countries. Allowing an unlimited number of flights to six metro airports in India namely Delhi, Mumbai, Hyderabad, Kolkata, Bengaluru and Chennai, from Jamaica, Guyana, Czech Republic, Finland, Spain and Sri Lanka, the new arrangement will encourage connectivity and passenger travel between India and these countries.
Moreover, to enhance seamless connectivity between India and far off destinations not served by direct flights, a serious focus on code shares was observed at the NCAP 2016. India also initiated renegotiations of traffic rights with Oman, increasing the entitlements with 6,258 seats effective from summer 2017 as the existing entitlements were nearly exhausted.
