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The Expedia Partner Conference, hosted by the Expedia Group in Las Vegas, Nevada, from December 5th to December 7th, brought together executives in the hospitality, tech, and travel industries to discuss a variety of topics germane to customer loyalty and experience. On the second day of the conference, Lori Ranson, Senior Analyst at CAPA, projected trends for the airline industry in 2019. CAPA, otherwise known as the Centre for Aviation, offers market intelligence, data, and insights on the airline and travel industries.
Ranson began her presentation with an overview of the industry as a whole. “Uncertainty has been the norm for the past couple of decades. Everybody in the industry knows this. The unknown for 2019 include swings in fuel prices and trade, and the potential start of a global economic slowdown.”
She pointed out that fuel prices in 2011 and 2012 hit triple digits, but dropped to as low as $30 per barrel in 2015 and 2016. $86 per barrel is the current global average. However, if this price swings significantly in 2019, airlines will experience stress because they won’t be able to plan their budgets in detail.
Ranson’s predictions were not all doom and gloom, however. “One positive thing that’s happened over the past couple of weeks is that the UK and the US have reached an agreement in terms of open skies,” she said. “It seems as if the status quo is going to be preserved. Let’s hope that the uncertainty around Brexit remains, since this will preserve demand between the two countries.”
She continued, “Trade has been interesting. Throughout 2018, retailers have been sounding alarms about price increases and disruption of supply chains. A number of economists believe that trade will trigger the beginning of an economic slowdown as early as mid-2019.”
She explained other developments as well. “China is going to surpass the US as the largest aviation market in the middle of the next decade. India will take third place, surpassing the UK. These are growth markets. In addition, congestion in China at airports and in airspace is going to create air and rail coming together. India will see 20 percent domestic travel growth, and 8 to ten percent international travel growth.”
With some caveats, Ranson added that North American airlines have a positive outlook. “We’re seeing domestic and international demand, with the exception of a couple weak spots. Brazil and Argentina come to mind. They’ve suffered really bad currency devaluation this year. It doesn’t appear to be getting worse for them, but there’s no way to predict when things will get better.”
On the subject of Latin America, Ranson said, “ALTA has calculated that Latin American domestic routes represent about 37 percent of the ticket price, versus 19 percent for Asia. That’s a big difference when you’re trying to stimulate traffic with low fares.”
She continued, “Another development, mostly negative, is the decision to halt the construction of an airport in Mexico City. It was about a third complete, with a total price of $5 billion, but Mexico’s new president called it a huge waste of money during his campaign, and voters appear to have backed him on this point. What this means is that Mexico is going to lose a big opportunity to become a North-South travel point.”
Ranson’s presentation included two other takeaways. “The major talking point for all airlines is capacity,” she said. “American, Delta, and Southwest have all pledged lower capacity growth in 2019, and I don’t think they’ll backtrack on that.”
In addition, she argued, “Airlines need to have the pilot shortage in mind. They’ve got to discuss the need for 250,000 new pilots from 2017 to 2027. That’s a lot. They recognize that this is going to be a big challenge going forward, but they need to have more discussions about it.”
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