The airline industry has never really been able to recover from the economic downturn. Sure, there are some airlines that are doing well enough, but the majority of them are still struggling to find their place. A lot of this has to do with the rising cost of fuel. These high fuel costs are keeping airline profits low. Now the International Air Transport Association has said that airlines will continue to struggle if governments do not step in to help improve their profitability.
Aircraft manufacturers have already started developing planes that are more fuel efficient. This is good because that can help increase airline earnings. That being said, many airlines are going to struggle to replace their current fleet with these new fuel-efficient planes. This is where the IATA wants governments to step in and help the airlines out.
This information was released in a report by the IATA that was focused completely on the airline industry’s weak earnings. In order to fix this problem, the IATA wants governments from around the world to relax regulations on airline mergers. The IATA believes that consolidation is, by far, the best way to drive up profits in the industry. However, current regulations are keeping airlines from doing this.
This report from the IATA, which was completely researched by consulting firm McKinsey, said that the airline industry’s annual return on invested capital was only 4.1 percent between the years 2004 and 2011. This was only slightly higher than the average of 3.8 percent between 1996 and 2004. Although an improvement was a good thing, it is still way below the average cost of capital, which is 7.5 percent.
These reports go hand in hand with a report that was recently released by Boeing. In this report, the aircraft manufacturer said that carriers will have to buy aircraft worth some $4.8 trillion over the next 20 years to replace their aging ones. Some airlines might even need to replace them sooner rather than later because their aging fleet is not fuel efficient.
The director general of the IATA, Tony Tyler, said that they need to find a way to improve returns for investors in the airline industry. If they cannot, it is going to be almost impossible for airlines to find money to invest in new fleets. The next two decades are looking pretty grim. This industry is struggling because of government policies that keep them from being able to merge together. There is plenty of room for both sides to speak with each other.
Despite this bad news, even the IATA admits that there are some exceptions to this rule. For example, Ryanair is doing very well when it comes to generating a return on investment. In fact, low-cost carriers have been doing decent ever since the economic downturn. This is because companies are now looking to send their employees on budget airlines instead of full-service ones. If something is not done, the world might lose full-service airlines altogether. All airlines will have to become budget in order to keep up with demand. Full-service airlines have to find a way to get their costs down.