This past year was considered a significant year for the global airline industry. The disappearance of AirAsia Flight 8501 and the explosion of the Malaysia Airlines Boeing 777 in the Ukraine war zone have raised questions about the safety of Asia’s low-cost airliners. Meanwhile, as oil prices drop, the cost of operating airlines will definitely decrease, but it may or may not help the global airline industry.
The growth of the air-travel market in the Malaysia-Thailand-Singapore area remains low, as a result of the loss of two Malaysian airlines and civil unrest in Thailand. Safety has become the number one issue in the airline industry in South Asia. It is said that the death rate in airplane crashes over the past decade in Indonesia is 25 times higher than in the U.S. Because of this, insurance companies have charged Indonesian airlines nearly double the global average for premiums per passenger. In addition, the EU has banned 62 Indonesian carriers from flying to Europe. As a result, the operation costs will increase for South Asia’s airliners in spite of the sharp drop in oil prices.
The decrease in jet fuel prices brings opportunities for China’s and the U.S.’s airline markets. As the demand for air transport in China continues to rise, companies can enjoy the combined benefits of the increased demand and the decreased operation costs, which boost the profit margins on two ends. In the U.S., where people drive vehicles on a daily basis, a drop in oil prices enables people to spend less money on gas. This enables people to spend more of their disposable income on high-end purchases such as air travel. The demand for air transport is expected to rise in the U.S., which could help the recovery of the U.S.’s airline industry from the recession.
In all, opportunities and challenges are definitely present in the global airline industry. The air accidents of late will push governments to implement safety reforms in the airline industry. The drop in oil prices, coupled with the increasing demand, will spur growth in certain markets. However, it will make some markets less competitive because of the currency risks.