A combination of economic crises, both globally, and now in Europe especially, as well as the H1N1 epidemic, the Icelandic volcanic ash fiasco, the constant threat of terrorism and slick competition from new and emergent carriers has caused numerous headaches to the established carriers in the industry.

According to IATA, the airline industry posted a loss of nearly US$10 billion in 2009. But things have improved significantly this year, with predicted profits to reach $2.5 billion for 2010. It’s a dramatic turnaround and represents pre-recessions levels. Between May and June 2010, a 100 aircraft in storage and a further 93 new aircraft were added to the global fleet to meet a strong upsurge in passenger travel demand. Demand for air cargo services also expanded significantly, outstripping additional capacity.

Leading the airline industry recovery is Latin America, with a 23.6 per cent growth in demand for May 2010, as compared with May 2009. The strong economic performance in South American economies, especially Brazil’s (with a national income growth of over six per cent) is aiding this recovery. Brazil’s economy will have a significant positive impact on global aviation. It is now the third-largest commercial aircraft producer in the world, and its export market for agricultural, mineral and technological goods will help the nation boast the fifth-largest economy in the world shortly. Added to this, the nation’s near-200 million population and vast geographic area, domestic air travel will continue to boom. Brazil is also one of the few countries, like China, that remained relatively unscathed by the recent GFC, due to its large domestic demand driving the economy.

The sector with the second-highest traffic growth is the Middle East. With several Arab Gulf states’ airports (Dubai, Abu Dhabi, Bahrain and Qatar) acting as hubs for European to Far Eastern air traffic. With huge continued investments in their respective airlines, the region has posted a 17.6 per cent growth for this year, thus far. This growth is expected to continue for a long while, with three emerging Gulf airlines – Emirates of Dubai, Etihad of Abu Dhabi and Qatar Airways, all expanding their fleets in anticipation of a massive growth in commercial air traffic to the region.

Leading the charge is Emirates which, in less than a decade, could become the world’s biggest international airline, boasting a fleet of over 400 aircraft, including nearly 100 Airbus A380 super jumbos. The airline is already the biggest customer for both the B777 and the A380. By 2020, Emirates is expected to carry about 80 million passengers annually.

At a time when most airlines worldwide posted huge losses, Emirates posted a $1 billion profit, driven by lower fuel costs and higher operating efficiencies. Emirates is already making some of the more established international airlines nervous, as the Dubai-based airline makes inroads into the international long-haul sector.

“If Emirates is creating waves with a fleet of 138 aircraft presently,” notes one aviation expert,” imagine what impact they will have with a fleet three times as big!”

Not bad for an airline that began about a quarter century ago with just $10 million starting capital and two short-haul jets. Agreed, several factors have helped Emirates achieve its Cinderella status (such as geographic proximity of Dubai to nearly half the world’s population; the emirate’s status as a business and aviation hub; an understanding government with liberal aviation policies ; strong credit rating, due to possible back up the airline could get from the country’s sovereign funds; excellent infrastructure and low labour costs), but few forecasters could have predicted its continued rise on the global stage.

In addition to Emirates phenomenal growth, the government of Dubai is constructing a mega airport, at a cost of no less than $50 billion at its Jebel Ali industrial area. The Al Maktoum Airport (named after the royal family of Dubai) will be the biggest airport when it opens, and will have the capacity to handle no less than 160 million passengers a year (which is about 50 times the size of the current population of Dubai). Presently, the highly efficient and luxurious Dubai International Airport is the third-busiest international airport in the world, behind London Heathrow and Hong Kong International.

Both Abu Dhabi and Qatar are not far behind. Each of the two emirates is also expanding their airlines and airports fast. Qatar Airways is the launch customer for the Airbus A350, and has placed orders for about 80 aircraft. The airline was also voted third-best international airline in 2009 for the world, running close behind South Korea’s Asiana (first-placed) and Singapore Airlines. Abu Dhabi’s Etihad, under an Australian CEO, is yet to post positive results, as it has been running in the red. But the airline has been recognized as the fastest-growing carrier the world has seen so far.

These three international airports will be able to handle over 180 million passengers within eight years.

Despite the unprecedented and unfettered rise of the Gulf airlines, its main competitors, like Germany’s Lufthansa, have been working hard to tackle the threat they face on long-haul routes from these new upstart airlines. Critics of the Gulf states also cite the low wage rates that Gulf carriers pay their staff, as well as the minimal pay rates that the several million-strong armies of construction workers from India and Pakistan are paid to build the futuristic mega airports.

Some detractors go so far as to accuse the Gulf airlines of benefiting from secret government hand-outs and preferential treatment on aviation fuel. But these accusations have so far been unfounded, and evidence suggests that Emirates Airlines, for example, pays slightly more for its fuel than other airlines. Dubai does not have an aviation fuel refinery of its own presently.


Asia-Pacific aviation

That leads to the other growth sector – the Asia-Pacific region, which recorded a 17.5 per cent growth in its industry as for May 2010 as compared to May 2009. The fast-growing markets of India and China are the primary drivers of this growth. India, in particular, is experiencing a mushrooming of low cost carriers across the nation. This is attributed to the strong economic growth the country has experienced for the past decade, and is likely to experience for a long time to come. Far-sighted economic policies, and continued encouragement of local entrepreneurial initiatives, by the Central Government, and mainly by its sagacious Prime Minister Manmohan Singh has benefited the air travel sector.

Within less than a generation, India has shifted from a Third World economy to a strong Second World economy, and one that will be a global leader in a few years. Within the coming decade its 1.2 billion people will experience a quadrupling of their per capita income and its economy will surpass that of the United States in less than 40 years. What this means for the airline industry is that about 200-300 million people in the middle to upper income bracket will be regular air travelers, and therefore generate significant demand for the industry. However, with severe income inequality in India, it will still be a while before its airline industry reaches the level of maturity and sophistication that some of the more established markets maintain.

Although India’s aviation sector has been producing or licence-manufacturing a range of military aircraft, including combat jets, advanced trainers and helicopters, it does not have a commercial aircraft industry. Regardless, India’s civil aviation authorities predict the nation’s commercial aviation sector to be the fifth-largest in the world shortly.

Similarly, China, boasting the fastest economic growth rate on the world’s second-biggest economy is a major player, where commercial aviation is concerned. With over a million millionaires and over 100 million relatively wealthy consumers, China’s demand for business and general airline services has been growing steadily. China is one of the most visited countries in the world, and with over 50 million inbound tourists and travelers annually there is a high demand for quality airline services. Additionally, with massive amounts of international trade, including for perishable goods, air cargo requirements are growing. However, one area of concern for most Asia-Pacific carriers, including airlines like Cathay Pacific of Hong Kong, which rely heavily on cargo traffic, is the downturn in Europe’s economy. With a weaker European consumer market the demand for Asian goods and cargo services are facing worrying times.

Meanwhile in Australia, Qantas has resumed its first international flights to Papua New Guinea through QantasLink, which has invested $600 million on 20 Q400 aircraft. Additionally, Virgin Blue and Air New Zealand have been considering a Trans-Tasman codeshare tie-up. Presently, Qantas and Jetstar control about a third of the sector’s traffic, Air New Zealand about 37 per cent and Virgin Blue 17 per cent, whilst Emirates has 13 per cent. A tie-up between Virgin Blue and Air New Zealand will give the two airlines about 54 per cent of the whole market share for the sector.

Sydney Airport has been continuing its upgrade to its facilities with the $1.7 billion capital injected in 2007. The airport will enhance facilities to handle the more than 10 million passengers who use the airport annually.

Airlines in Australia and tourist and business facilities will continue to benefit from growing trade, commercial and investment tie-ups between China and Australia. Recently, Chinese commercial entities have been pumping millions into commercial property projects in Australia. There is also a continued growth in Chinese tourists to Australia and, reciprocally, Australians visiting China. All this bodes well for growth in air travel between the two countries.

But not so lucky was the iconic JAL, Asia’s biggest airline, which filed for bankruptcy protection earlier this year, after losing over $1 billion in a single quarter. The airline’s management has engaged in several cost-cutting measures, including streamlining its workforce, destinations and fleet. Over a third (15,700) of its workforce lost their jobs, whilst the airline hopes to receive a cash injection of $3 billion (including $1 billion from the Japanese government) and a debt waiver of over $7 billion.

Amidst its deep financial woes, JAL considered merging with ANA to create a stronger entity. It also went into negotiations for alliances with both Delta and American Airlines, eventually favouring the latter.


The airline sector in Africa posted a fairly healthy 16.9 per cent growth rate for May this year (compared with May 2009), which was supported by economic growth in the region. However, there is much room for growth in the continent, but that depends on myriad factors, including a comprehensive intra-continental socio-economic growth and economic stability.


North America

North American commercial aviation saw a growth of 10.9 per cent. But with a significant number of airlines in America operating under Chapter 11 bankruptcy protection, there is significant room for improvement in many areas, but mainly in operations, efficiency and customer service. The levels of customer service are low and labour costs very high amongst North American airlines, as compared to the leading international airlines, like Singapore, Emirates and Qantas. With several airlines in the United States fighting for survival, mergers, alliances and enhancements to efficiency are few of the options for redemption.

In May, United and Continental airlines announced a merger, which will see the new airline (the world’s largest, with about 800 aircraft), flying under the United Airlines banner, and control seven per cent of the global aviation market. Market consolidation through mergers seems to be best alternative in the United States, and the new merger is likely to follow in the tradition of the Delta and Northwest merger in 2008.

Meanwhile, Europe’s aviation market recorded the weakest growth (8.3 per cent for May 2010, as compared to May 2009), due to continued economic and financial crises (including national bankruptcies), the volcanic ash episode and tighter fiscal polices (higher taxes) within the European Union, which will cut into passengers spending money on travel. Lower production output and growth could also lead to a slight downturn in the demand for cargo air services. Additionally, labour strikes, as experienced by British Airways, are also causing headaches to the European aviation market.


New Kid on the Block

Brazil’s aviation industry is now the third-largest in the world. With its national carrier Varig being recently forced to compete, in some sectors, as a low cost carrier to stave off competition from local airlines GOL and TAM, Brazilian passengers are benefitting immensely. Air travel in that country is on the rise and will continue to do so. Additionally, the construction of six new regional airports and expansion on five other airports is a clear indicator that double-digit growth of the Brazilian aviation sector, fuelled by massive local demand, is realistic.

With over $20 billion in total orders for aircraft, Brazilian aircraft manufacturer Embraer has resurged to become one of the biggest plane builders in the world. Its offering of short-haul commercial aircraft, business jets and military aircraft at highly competitive prices has proven popular with customers worldwide. Embraer has also been experimenting with new fuel technologies, which will keep the company in good stead for the future (from an environmental perspective).



Perhaps one important lesson learnt from the European ash cloud crisis is the importance of social media (such as facebook, twitter, iphones, texting and the like) as marketing tools for airlines. Thousands of passengers were kept abreast of flight schedules and delays during the crisis on a regular basis by leading Europeans airlines, like Lufthansa, through updates to mobile phones. A recent survey revealed that mobile phones are the primary travel accessory that the majority of passengers choose to carry with them whilst flying. As a spin-off from this experience, dynamic marketing arms of major airlines have chosen to promote their services, special promotions, sales, new destinations and latest company news through social media. This might prove to be a relatively cheaper and more accessible form of airline marketing and promotions for the future.

Another important area of establishing customer loyalty is to provide a complete passenger service, including the best-possible customer service from start to finish, efficient reservations (including hotels, onward connections and vehicle rentals etc) and minimal baggage handling errors. In an age where customers are spoilt for choice, an airline can ensure customer loyalty by providing exceptional service. Each potential passenger could be worth far more than, say, $2000 of revenue to an airline for a one-off long-haul flight. If that passenger becomes a loyal customer for life, then an airline can stand to earn say $50,000 over 30 years, in addition to further referrals by that passenger for other new customers.


A350 vs the B787

Sales of Boeing’s 787 continues to outpace its rival mid-size jet Airbus A350, by 866 to 533, despite significant delays in launching the Dreamliner. Japan’s ANA, the launch customer with 60 orders, has already faced delays of over two years in receiving the aircraft. A range of technical concerns with the Dreamliner, including fuselage structural issues, and stalled production management processes of Boeing’s Dreamliner (including significant delays and capacity problems by the large sub-contractor base) has added to the problem.

Meanwhile, Airbus faced significant criticism of its initial handling of the A350 program. With the European consortium focusing primarily on the super jumbo A380 market, Boeing managed to outdo its rival in marketing strategy and positioning. With a global demand for about 20,000 airliners in the next 20 years, Boeing’s focus groups managed to identify the bulk of the demand would emanate from the mid-sized aircraft market, and not super jumbos. As a result, Airbus was heavily criticized for hastily putting together, what was considered a repackaged version of the A330, to compete against the Dreamliner. But with various redesigns, and Qatar Airways, as launch customer (ordering 80 A350s), the new model is likely to successfully grace the skies in a couple of years.


The future

With global passenger and cargo traffic expanding fast, and with the success of numerous low cost carriers, the more established airlines will have to be on their toes to survive. Market consolidation through mergers and alliances is one way, as are good customer service, operational efficiency and more dynamic marketing strategies. Given the rise of Middle Eastern carriers and hub airports, and the fast growth of the economies of Brazil, China and India, the global aviation is witnessing several new big players.

With the adverse effects of the H1N1 virus, the European ash cloud crisis and the global financial crisis somewhat behind us, the global aviation industry can look forward to better times. It is an exciting time as the shift in global aviation activity moves boldly eastward to the massive consumer markets that are expected to dominate global demand. Australia, too, will benefit significantly, given its proximity to these new markets.

But there are challenges ahead, especially for a less-than-robust European market.

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